Impacts of the presidential election on M&A

Impacts of the presidential election on M&A

There are many uncertainties when it comes to the future of the economy when a new presidential candidate takes office. Changes in tax law, government spending, and policies may change in the near term and will lead to political and economic uncertainty. Fortunately, there is some history we are privy to that may be able to provide insights into the future. 

Pre-election year M&A trends

The uncertainty surrounding presidential elections has historically slowed down the M&A market by 8-10% on average. The unpredictability of inflation, change to foreign policy and affairs, and interest rates made it more difficult for private equity firms to finance their deals throughout 2022 and 2023. 2023 was a historically bad year for M&A deals where deal activity was the lowest in nearly two decades. Private equity firms have amassed over $2.6 trillion in dry powder (unallocated capital held by private investment firms) as of July 2024 based on recent studies done by S&P Global. Industries primed for increased deal flow are the energy, healthcare, technology and real estate. So, what exactly are investors waiting for to step off the sidelines and onto the playing field?

Post-election year M&A trends

While there is no crystal ball that will tell us exactly what the future holds, we can try to use the post-2016 election market history as a gauge for future outlook. Dealmakers continue to be optimistic on the deal volume expected in 2025 and beyond. 

According to CNBC, US-based M&A deals totaled $1.2 trillion in the year following Trump's election in 2016. This was the most deals in both valuation total and number for a first-year president of all modern-era presidents, an increase of approximately 11% in deal volume and 3% in deal value over 2016. The industries that saw the biggest uptick in deals were energy and natural resources, healthcare, consumer and retail, and technology. 

One of the mainstays of Trump's campaign is to impose higher tariffs for foreign entities that export directly into the United States. Many companies will curb this initiative by making a direct investment in a US based entity or even acquiring said business outright, signaling an increase in mergers and acquisitions. 

The other mainstay, lower corporate taxes, is another factor that may drive US based M&A activity. One of the biggest benefits of an M&A deal is for the tax benefits. If US based entities see lower corporate taxes, they become more appealing to potential acquirers who may even pay higher valuations if they are offset by tax savings. 

The 2024 election was different for many reasons, but one tidbit rises above the rest when it comes to predicting the future of the economy - both have shown their hand. Investors may have been able to forecast market impacts each candidate may have had on the economy by leaning on recent history - VP Kamala Harris would have likely continued with most of the same policies her and President Joe Biden have implemented since 2020 while Trump would revert to his policies from 2016 through 2020. Will the knowledge of Trump's last presidential term ease the burden of investors and provide a level of comfort to help catapult the M&A market in 2025? Only time will tell.