Is the budget deal just a temporary fix?
Since last week’s budget deal, one of the questions on my mind is: How long will this period of certainty last?
The deal is expected to pass this week in the Senate, and it’ll likely be signed by the president before Christmas.
So 2014 starts off with some semblance of stability, but with the mid-term elections coming up in November, it’s unlikely that Congress will pass anything of any real substance.
I doubt we’ll see any significant procurement reform legislation this year, though the hearings stemming from the HealthCare.gov issues will likely lay the groundwork for reforms going forward.
The unfortunate thing these days is that when legislators talk about reform, it’s not about efficiency -- it’s about compliance and oversight.
So, what will we see in 2014?
As I’ve written previously, mergers and acquisitions will pick up because of the need for consolidation. Some companies will shed divisions while others will be completely acquired.
Publicly traded companies will likely be the most active as they look for new ways to boost revenue and improve profits.
The last couple years, the focus has been on cost-savings, which have boosted profits and given them the ability to pay higher quarterly dividends. This has buoyed the price of their shares, but it isn’t a sustainable model.
Now that the budget picture is clearer, I expect companies to start shifting some of their resources to acquisitions and other investments as a way of showing investors they have a clear path forward.
I think most of the activity will start in late spring and pick up rapidly through the rest of the year.
A key for companies is having a clear path forward.
Now more than ever, companies need to know where to place their bets, and smart companies have been working on that long before the budget deal.
I still worry that the clarity that the budget deal has brought to the market has a shelf life of maybe 18 months.
I’m not sure that anything fundamental has changed; it’s almost as if the two decided to agree to disagree, and with the Senate at odds over the filibuster rule changes, it is unlikely more substantive movement on taxes, entitlements and other policy decisions that loom.
Don’t get me wrong, the budget deal is good news for government and industry. For at least the next year, agency leaders and company executives can move with some certainty.
Certainty doesn’t mean a return to boom times, however; tough decisions and actions lie ahead.
But you better make them fast before the clarity in the market turns cloudy again.
Posted by Nick Wakeman on Dec 16, 2013 at 9:49 AM