Perspectives on How the 2024 Election Might Affect M&A Deals

In this Special Election episode, I dive into how the upcoming 2024 election could impact the mergers and acquisitions (M&A) landscape. While many are fixated on the candidates' differing positions regarding capital gains tax—Harris suggesting an increase to 28% and Trump supporters proposing a cut to 15%— Immediate changes in this area are unlikely due to the current political gridlock. I also discuss the potential for stricter antitrust enforcement under a Biden/Harris administration. However, it’s important to note that these regulations primarily affect large public company deals, leaving most M&A transactions untouched.

This episode emphasizes the overarching influence of macroeconomic factors like interest rates, inflation, and general market uncertainty on deal flow. Historical trends show that election-related uncertainty usually leads to a temporary slowdown in M&A activity, but the market typically rebounds once the election results are in.

PRIORITIZE LONG-TERM POLITICAL STABILITY OVER IMMEDIATE TAX CHANGES

When it comes to mergers and acquisitions (M&A), the conversation often revolves around capital gains tax rates. But it’s important to keep in mind that any major changes to these rates aren’t likely to happen anytime soon, especially with the current political landscape. Right now, the capital gains tax rate is at 20%. There have been talks about increasing it—some Democrats have even suggested going up to 28%—while some Republicans want to lower it to around 15%.

However, for any of these changes to actually take place, we’d need a more stable political environment, with one party in control of both the White House and Congress. Since we’re currently in a divided government, it seems pretty unlikely that we’ll see any significant shifts in the near future. So, for businesses considering M&A, it’s smarter to concentrate on broader economic trends and long-term strategies rather than stressing over potential immediate tax changes.

GET A GRIP ON ANTITRUST REGULATIONS AND M&A

If a Democratic administration is elected, we’re likely to see a stronger focus on enforcing antitrust laws. This could mean that big companies, like Google, might find themselves under a microscope, with talks about breaking them up becoming more common.

On the flip side, a Republican administration, especially under Trump, would probably take a more relaxed stance on antitrust issues, making it easier for larger mergers and acquisitions to go through. For businesses looking to make deals, it’s really important to keep an eye on these regulatory shifts. Stricter antitrust enforcement could throw a wrench in their plans and affect how they approach growth through acquisitions.

MACROECONOMIC TRENDS MATTER MORE THAN POLITICS M&A

While political elections can create uncertainty that impacts mergers and acquisitions (M&A) activity, the broader macroeconomic environment plays a more significant role in driving deal flow. There is often a slowdown in M&A activity leading up to elections due to uncertainty about potential outcomes.

However, once election results are clear, activity tends to pick up as the market stabilizes. Current macro trends, such as decreasing interest rates and inflation, foster a rebound in deal flow and valuations. This reinforces the importance of focusing on economic indicators rather than getting overly caught up in the political landscape, which can lead to exaggerated fears or expectations about the economy's future.

REGULATORY CHANGES CAN DRIVE DEAL FLOW

Regulatory changes can have varying impacts on deal activity. While some view regulations as hindrances to business operations, they can also act as catalysts for M&A activity. Increased regulatory burdens may lead smaller firms to seek mergers or acquisitions with larger companies to navigate compliance challenges more effectively.

For example, in sectors like wealth management, additional regulations have prompted many smaller firms to sell or merge with larger ones. Understanding the specific context of regulations and their effects on industries can provide valuable insights into potential deal opportunities, highlighting that regulations can create strategic advantages in the M&A landscape.

TAX AND LABOR POLICIES INFLUENCE DEAL ACTIVITY

The broader economic environment, shaped by tax and labor policies, plays a crucial role in M&A activity. Take the Trump tax cuts, for instance—if they expire and provisions affecting capital gains taxes aren't renewed, it could really impact business valuations and how eager companies are to make deals. That uncertainty might make businesses think twice before diving into acquisitions.

Labor policies are another factor that can influence M&A. If an administration leans toward stronger union support, like what’s been suggested about the Harris administration, companies might face higher wages and benefit costs. This could put a damper on some firms' acquisition plans, especially if they think their operational costs will rise due to unionization. On the flip side, if labor policies seem more business-friendly, that could create a more welcoming environment for deals to flourish.

POLITIAL ENERGY POLICIES SHAPE INVESTMENT OPPOETUNITIES

If a Democratic administration comes into power, we could see a surge in green technology thanks to supportive regulations and tax incentives that promote clean energy. This would likely encourage more investments and deals in that sector.

On the other hand, a Republican administration might focus on traditional energy sources, which could create more opportunities in fossil fuels. So, the political landscape definitely has a big impact on where money is flowing in the energy space!

UNDERSTAND ECONOMIC POLICIES AND THEIR IMPACT

If we start seeing more protectionist policies, like heavy tariffs on Chinese goods, we might face higher consumer prices and some macroeconomic challenges. But there’s a silver lining: these changes could also give U.S. companies a chance to be more competitive. So, keeping an eye on how political shifts affect the market is crucial—it can really shape investment strategies and how businesses plan for the future.

EXPECTATIONS DRIVE MARKET PERFORMANCE

Often, market prices are more about what investors think will happen rather than what's actually going on right now. For instance, when there’s buzz about economic policies—like new tariffs or tax credits—stock prices can shift even before those policies are officially announced. If investors grasp how these expectations tie into real outcomes, they can better spot potential opportunities and risks in both public and private markets, especially as we navigate economic changes and upcoming elections.

Tune in to gain a broader understanding of how the economic environment will shape M&A activity, rather than just focusing on individual policy changes. This episode is packed with valuable insights that every entrepreneur and business leader needs to navigate the ever-evolving landscape of mergers and acquisitions.
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Corey Kupfer is an expert strategist, negotiator, and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author, and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.

Get deal-ready with the DealQuest Podcast with Corey Kupfer, where like-minded entrepreneurs and business leaders converge, share insights and challenges, and success stories. Equip yourself with the tools, resources, and support necessary to navigate the complex yet rewarding world of dealmaking. Dive into the world of deal-driven growth today!