All Eyes on the Presidential Race
M&A experts weigh in on how election outcomes might impact dealmaking in the months ahead
The 2024 election year has brought several surprises—most notably President Joe Biden’s exit from the presidential race. However, this cycle is not unlike other presidential election years in that M&A activity tends to accelerate ahead of a transition of power.
“We’ve definitely seen a pickup in M&A activity over the last two months,” says Brad Haller, senior partner in Mergers & Acquisitions at Chicago-based West Monroe, speaking to Middle Market Executive in August. “From mega-cap funds down to smaller funds, we’ve heard they are trying to do a deal prior to the election with the expectation that, regardless of which party wins, there is going to be some type of contested period.”
No one wants a contested election, which “would bring uncertainty to M&A and an overall slowdown in business activity as the uncertainty is worked through,” Haller says.
For that reason, M&A professionals are watching the election closely. And although they don’t anticipate sweeping change, they’re keeping an eye on an array of issues ranging from tax policy to tariffs and antitrust enforcement.
Tax Policy
Any changes to tax policy will hinge on who wins the White House, and which parties prevail in the House of Representatives and Senate. However, Lyle Wallace, M&A partner at law firm Sherman & Howard, doesn’t expect the November elections to deliver major changes to the makeup of Congress.
“I think the presumption is, no matter who gets into office, whether it is Donald Trump or Kamala Harris, that the Senate and Congress are going to be relatively unchanged or pretty close either way,” Wallace says. “And it’s not likely that there is going to be a significant change in tax legislation.”
Divided government has its benefits, he adds. “I think the macro economy tends to do best when there is one party in the White House and the other party is in control of Congress so, from a macroeconomic standpoint, the biggest issue would be who wins the White House and who takes control of Congress, one or both houses, and what that means for implementation of tax policy.”
One policy whose fate the election will determine is the 2017 Tax Cuts and Jobs Act, which brought major changes to the tax code, including lowering the corporate tax rate to 21%. The cuts are set to sunset in 2025.
A tax plan Harris rolled out in August would result in $5 trillion in tax increases over a decade and raise the corporate tax to 28%, although Wallace doesn’t expect that to be applied across all sectors.
“I think the expectation is that if Donald Trump wins, there would be an extension of the tax credits,” Wallace says. “But a lot of business leaders that we speak to wouldn’t expect Kamala Harris to completely let them sunset. She’s shown some pro-business and certainly pro-union tendencies, and I think those unions would push her to extend those within certain sectors.”
Wallace points to the service, automotive and residential homebuilding industries as among those likely to advocate for exclusion.
Political rhetoric around the capital gains tax is another area M&A practitioners are watching. President Joe Biden’s March budget proposal, which Harris has endorsed, would raise the capital gains tax rate on long-term investments from 20% to nearly 39.6%. In addition, she supports the idea of taxing unrealized capital gains for individuals with a net worth exceeding $100 million.
“Increases to capital gains taxes could have unfavorable impacts to the private equity community, including smaller fund sizes, longer hold periods, lower valuations and possible geographic shifts,” says West Monroe’s Haller.
Tariffs and Trade
Another area of interest is trade policy.
“Tariffs are an issue that companies, particularly those in manufacturing and distribution, are focused on,” Haller says. “A majority of companies have global operations at this point, even within the middle market—especially PE-backed companies that have grown through add-ons.”
Harry G. Broadman, a senior economist with think tank Rand and principal with WestExec Advisors, points to former president Trump’s fondness for tariffs and messaging that belies their true cost. “Trade is a big issue, particularly for Trump, who has never seen a tariff he doesn’t like,” Broadman says. “He’s been myopic, if not ill-informed, about how tariffs are paid. He thinks that, in the case of China or any other foreign country, that their firms and consumers pay tariffs that the U.S. imposes on their goods imported to the U.S. That’s not what one learns in Economics 101 or how real-world markets work.”
Trump in June floated the idea of imposing a 10% across-the-board tariff on all imports to generate revenue to offset a potential extension of the 2017 tax cuts.
“A lot of people in the U.S. political space don’t comprehend who in our economy ultimately would bear the cost of such a policy,” Broadman continues. “It’s paid by firms that are procuring the imports which, in turn, will raise their costs and reduce their profits.” Consumers ultimately pay for the tariffs via price increases.
Industries that use steel or machinery or anything made in China are particularly affected by tariffs, Broadman notes.
Antitrust and Regulatory Enforcement
The Biden administration has focused on competition in the markets, but whether that attention continues if Harris prevails remains to be seen.
“The Federal Trade Commission and the Department of Justice have increased scrutiny, particularly of larger deals, which may be outside the middle market, but also in the middle market,” Wallace says. “I am making an assumption that Kamala Harris is getting a lot of pressure from donors, particularly corporate donors, to fire the current head of the Federal Trade Commission and replace her to decrease the level of scrutiny on transactions, because it has created a significant challenge in the regulatory environment to get middle-market and larger deals done. She could bow to that pressure and replace [the FTC chairman], but it’s an unknown.”
Haller agrees that the antitrust issue is a hot topic, particularly in the technology sector. “There seems to be momentum from Silicon Valley leadership moving from traditional left-leaning toward right-leaning, because they feel it’s hard for founders to exit [their companies] if they can’t sell to a Google or an Amazon,” he says.
Interest Rates and Looking Ahead
The extent to which the election is driving deal activity is up for debate. “Overall deal volume and deal values are up a bit primarily due to pent-up demand and private equity seeking deals, not due to the election,” says Sherman & Howard’s Wallace.
If firms believe they will move ahead or stall simply based on what they think the election outcome might be, then I think something is wrong with their business model.
Harry G. Broadman
WestExec Advisors
Experts agree, however, that falling interest rates through the rest of 2024 will greatly impact dealmaking, regardless of the election results. “The Fed policy on interest rates is very closely watched and really important because it can have an instantaneous effect on business decisions,” Wallace notes.
Still, Broadman doesn’t anticipate any drastic moves by the Fed, currently chaired by Jerome Powell. “I don’t think the Fed is going to make a sudden change one way or the other unless Powell were to resign and be replaced by someone with a very different stance on monetary policy, which I don’t think will occur,” he says.
As for elected officials, Broadman cautions middle-market executives against planning their business strategies on who occupies the White House, because those leaders come and go. Rather, they should consider the stability of the U.S. economy, the rate of growth and their organization’s exposure to international competition. “If firms believe they will move ahead or stall simply based on what they think the election outcome might be, then I think something is wrong with their business model,” Broadman says.
Fortunately, business leaders are unlikely to have much change to contend with stemming from the November election. For his part, Haller expects continued gridlock, which he argues can be a good thing. “With gridlock, while it creates some level of uncertainty, it also doesn’t bring about sweeping changes,” he says.
Annemarie Mannion is a former reporter for the Chicago Tribune and a freelance writer who covers business.
Middle Market Growth is produced by the Association for Corporate Growth. To learn more about the organization and how to become a member, visit www.acg.org.
