After slow deal flow last year, 2024 was expected to bring a resurgence in mergers and acquisitions as inflation eased and financing improved. In the first half of this year, transactions in the U.S. increased 6% over the same period in 2023, according to the Pitchbook Q2 2024 Global M&A Report. Though a noticeable improvement, deal activity has not yet grown at the pace that many anticipated, especially in the middle market. As we head into the fall election cycle, many firms and their owners are wondering whether political uncertainty could offer another headwind to a sale or acquisition opportunity.

According to S&P Global Market Intelligence data, transaction activity often declines after an election. In four of the seven election cycles prior to 2016, U.S. mergers and acquisitions saw double-digit percentage declines in deal value from the post-election-day period to year’s end, compared to transactions that occurred between Labor Day and election day.

The impact of elections on mergers and acquisitions depends on many factors. Political shifts affect inflation, interest rates, taxes, and ongoing geopolitical conflicts, and are likely to have a substantial impact coming out of this election. Buyers and investors dislike uncertainty in the deal environment, and elections and administration changes pose many unknowns. One key area is regulatory review of transactions. Governmental challenges to deals—from grocery mergers to healthcare transactions—have dominated recent headlines. Presidential candidate Kamala Harris has recently announced plans to increase regulatory scrutiny of certain transactions, including those in the food and beverage industry, which signals a continuation of the Biden administration’s focus on antitrust enforcement. A Trump administration would likely de-emphasize regulatory scrutiny, and go easier on private equity roll-ups. At the local level, many states have recently adopted, or have proposed, review processes for health-care transactions.

The transactions most likely to be immediately impacted by the election are large deals that have planned or pending regulatory review with state or federal agencies such as the Federal Trade Commission. Given the divergence in policies, it’s possible a brief pause in dealmaking around the time of the election could occur, until there is more certainty about future policies. At the same time, there might be less uncertainty about the 2024 election than in the past because the candidates are well known.

There is also uncertainty about proposals by the current administration to increase the federal capital gains tax rate and the Medicare tax, and differing views on the corporate tax rate.

The election may also bring closure on controversial initiatives. In Washington state, voters will decide whether to repeal the state capital gains tax that took effect in 2021 and created a 7% state tax on the sale or exchange of long-term capital assets such as stocks, bonds, business interests, and other investments and tangible assets. If the initiative passes, we could see an increase in sale transactions, and more succession planning opportunities in Washington state.

Although the upcoming election raises plenty of questions about potential changes in policies and laws, there will likely be a strong market demand to acquire or invest in premium companies no matter the outcome. Private equity continues to have a surplus to invest. Strategic buyers remain active in seeking opportunities to grow. Businesses that are well-prepared and have addressed the risk factors before going to market will be most likely to pursue those opportunities.

Quite often, it is unrealistic to schedule a business transition based on specific political and macroeconomic conditions. For most owners, the election will not drive their decisions about whether and when to sell. Instead, the crucial factors with regard to timing are more often the owners’ personal readiness for an exit, and their company’s preparedness for a transaction that will achieve maximum value and favorable terms. More in-depth due diligence will be conducted for many transactions, so advanced planning is paramount for a successful deal. Attorneys in Schwabe’s Privately Held Businesses & Enterprises (PHBE) and M&A groups stand ready to provide guidance as clients navigate these uncertain times.

This article summarizes aspects of the law and opinions that are solely those of the authors. This article does not constitute legal advice. For legal advice for your situation, you should contact an attorney.