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The Race to the White House is On: Here’s What to Expect in M&A After This Year’s Presidential Election

As we approach the United States’s 2024 Presidential Election, the anticipation of its impact on mergers and acquisitions (M&A) is palpable. After a year of slow M&A activity in 2023, the outlook for 2024 suggests a potential recovery, but several factors could affect this trajectory. The first half of the year brought modest growth and turned expectations to normalcy, but it’s not clear skies ahead yet. Global economic uncertainty and the impending election, among other factors, are hurdles to consider as we move into the second half of the year.

Historically, M&A activity is less influenced by the party in power and more by the overall political and economic uncertainty preceding an election. Between 1996 and 2016, in five of the last six presidential election years, the volume of deals a year before the election exceeded those in the year following the election. Similarly, the total deal value announced in the 12 months leading up to an election was generally 5-8% lower than in the 12 months following it.

This trend reflects the market's apprehension about the future state of the economy before an election, prompting companies to act sooner rather than later. The insecurity surrounding potential policy changes and economic conditions under a new administration often leads to a temporary slowdown in M&A activity, with a rebound typically occurring once the election results provide clarity and a forecast for the four years ahead.

The Impact of Party Control on Industry Sectors

The biggest impact of party control can be seen at industry sector level. Republicans are notable for basing their platform on development of fossil fuels, while democrats promote renewable energy development. Republicans fund the manufacturing, defense, and financial sectors, while Democrats favor industries such as technology, healthcare, and education. But data analysis might not reveal what one would expect. The top three performing stock sectors, technology, healthcare, and consumer discretionary, were the same under Obama and Trump administrations. Ironically and unexpectedly, businesses tied to renewable energy saw better stock performance under the Trump administration. Stocks of oil companies and other traditional energy companies have had better performance under the Biden administration.

2024: An Unprecedented Election Year

Given the unprecedented polarity in the current electorate, as well as geopolitical tensions, historical data may not be an accurate predictor of what November 2024 is to bring. Election years are always volatile and dynamic years, and 2024 is certainly not an exception. Globally, this year is notable for its record number of elections in over 60 countries, including major economies like the UK, Mexico, India, and South Korea. This global electoral activity adds another layer of uncertainty to the market. Historically, election years see a slight GDP decline as spending increases and revenue declines in an attempt to boost the economy in the run up to the election, a trend expected to persist in large this year.

Current geopolitical tensions in both Eastern Europe and the Middle East will undoubtedly play a role in shaping market conditions. The ongoing conflicts and uncertainties in these regions can lead to fluctuating commodity prices, supply chain disruptions, and changes in investor sentiment. Defense and security-related industries are likely to remain strategic and safer investments regardless of the final outcome of the election.

Middle-Market M&A: Insights and Recommendations

But what does this mean for middle-market M&A deals? Does it matter?

It is becoming increasingly likely that this year remains a M&A rebound year, and insight beyond depends on the unfolding of external geopolitical events. Considering the soft landing the Fed is aiming to accomplish, there are steps that firms on all sides of the equation can aim to take to get the most out of this unprecedented year.

Strategic buyers should capitalize on expected favorable financing opportunities and potential valuation opportunities as companies seek to divest in the face of pre-election uncertainty. However, be cautious about overpaying for acquisitions as post-election M&A activity may slow down, potentially leading to better deals.

Strategic sellers can benefit by positioning their companies for sale before the election in a stronger market to avoid a potential post-election slowdown. Given the low deal count last year and the pre-election increase, there is money that has been waiting on the sidelines for the last couple of years that can be turned into return on investment given the right timing.

Financial buyers should remain vigilant and conduct thorough due diligence in this uncertain environment. Preparing for a competitive market and securing financing ahead of potential rate cuts is crucial, but be cautious about the possibility of decreased deal activity post-election.

Financial sellers might slow down and time their exits to align with the expected increase in deal activity post-election. By capitalizing on potentially favorable valuation multiples following the election, financial sellers may be able to maximize returns on their investments.

What’s next?

Smaller, private firms often respond strongly to sector-specific changes that come with transitioning political power. However, this year in particular, predicted election-related economic effects may not cause as sharp reactions in financial markets compared to the more significant shifts in policy that follow an election. These policy changes are easily predictable for our current candidates.

The United States’s 2024 candidates lack the element of surprise, for better or for worse. We have seen both Trump and Biden occupy the Oval Office, so we have the data on how markets reacted to both candidate’s administrations. Trump's policies, characterized by deregulation and tax cuts, generally buoyed market confidence, particularly in sectors like energy and finance. Conversely, Biden's administration has focused on regulatory oversight and renewable energy investments, which have had a mixed impact on different sectors. The historical reactions to these candidates' policies provide a framework for middle-market M&A firms for anticipating potential market movements following the 2024 election.

Optimism Amid Uncertainty

Despite the uncertainties, there is reason to be cautiously optimistic about 2024 and beyond. Given low deal activity in 2023, the electorate’s expectation of the Fed to decrease interest rates while consumer spending remains strong, and a strong start to the fiscal year, there is certainly evidence that 2024 will defy the trend of low deal activity in an election year. This year is different from any other year. We can predict the policies and effects of the White House’s policies for the next four years. People are more informed about how to navigate the potential outcomes of the election. History is sure to repeat itself. The signs are clear: whether it's a blue or red party candidate taking the White House, market participants and firms have all the tools they need to leverage historical insights and take advantage of whatever new developments the year-end will reveal.

Why CDI?

CDI Global is a leading international middle-market advisory firm, specializing in
strategic cross-border transactions.

Whether you are interested in mergers and acquisitions, divestitures, capital raising, or joint ventures, CDI Global is committed to delivering our services with excellence and integrity. Rather than a primary focus on financial transactions, this firm was founded on providing strategic advice to industrial and commercial companies to help effectively grow their businesses through acquisitions and other forms of business combinations. We continue to take this client-focused approach, cultivating long-term relationships so we can help meet our clients’ strategic goals with lasting success. Our teams provide project management throughout our engagement so our clients can continue to focus on running their business.

CDI Global’s commitment to partnering with the best people means you can trust we conduct all of our business activity with respect and honesty. Our international reach is a celebration in diversity and comes with a deep knowledge of local customs and business practices so we can find the best opportunities in any region. We look forward to our continued growth as we form new relationships and provide world-class client service.

Caroline is currently pursuing her bachelor’s degree in Economics with minors in Psychology and Business at Northwestern University in Evanston, IL. She is working as an Associate at CDI’s North America Office during the spring of 2024. She currently lives in Boston, MA.

On campus, Caroline is a member of the Institution of Student Business Association Marketing Team and a Peer Advisor to new students. She also serves as the President of the Gamma chapter of Alpha Chi Omega Fraternity. In her free time, Caroline enjoys playing volleyball, running, and reading.

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