Presidential Election Cycles and the M&A Market

The M&A market can be affected by a multitude of factors including political, economic, and social elements. Election cycles have historically impacted M&A activity and the current presidential election is no different. Prior to an election, there is always uncertainty as to the outcome and the potential effects of new policies. The M&A market is not insulated to this uncertainty. As we approach the 2024 presidential election, historical election cycle M&A trends can serve as indicators to future activity, but it must also be recognized that there are unique factors and circumstances with every election.

Historically, since 1996, presidential election year deal volume is typically 8-10% lower than the year following. Other economic indicators, including the S&P 500, have also experienced lower than average returns during election years of 7% which is 3% lower than the average annual return. These metrics are indicative of the overall uncertainty surrounding the election outcome and policies of the new (or incumbent) administrations. This uncertainty can cause investors to delay deals until after the election; however, historical results and research supports that in many cases, the election is impacting the timing not the results. S&P Global Market Intelligence tracks U.S. M&A activity and performed a deep dive into trends from 1988 to 2016. 2016 and 2012 were the two most significant years of post-Labor Day to Election Day U.S. M&A transaction activity with $494 billion and $325.2 billion in deals taking place in each respective year. When considering U.S. M&A activity between Election Day and year-end during presidential election cycles, results have not been historically consistent. During the seven election cycles from 1988 to 2016, there have been instances of both double-digit percentage declines and double-digit percentage growth from Election Day to year-end when compared to the same year’s Labor Day to Election Day M&A activity.

How are current year U.S. M&A trends stacking up against historical election trends and what could this mean for M&A activity for the remainder of 2024 and beyond? Overall, Q1 and Q2 of 2024 are showing improvement from the same periods in 2023 both globally and in the U.S.; however, activity is still well below that of 2021. Recently released data from GF Data shows 2024 U.S. middle-market deal activity for the first six months of 2024 is set to outpace that of 2023 and 2022. There has been an uptick in add-on acquisitions through June of 2024 as compared to 2023. [1] While there are some promising metrics for the first half of 2024, these metrics alone cannot be viewed in a vacuum when considering the various other factors impacting M&A activity.

Some economists and analysts are of the opinion that the policies of both potential administrations are arguably known based on historical precedent, which may lead to less volatility for the economy, including M&A activity. However, in addition to policy considerations, the current 2024 election cycle has its own specific challenges and nuances that will also impact U.S. M&A activity over the next few months and into 2025. Current challenges include interest rates, inflation, corporate growth and earnings, and geopolitical unrest across the world.

The 2024 presidential election will undoubtedly impact the M&A market as we have seen in past election cycles. Regardless of the outcome, the Transaction Advisory team at Withum understands the complexities and uncertainty experienced by buyers and sellers during election cycles. We are here to serve as your trusted advisor during these unpredictable times and will be by your side throughout the lifecycle of your transaction.

Authors: Kelsey Thomas | [email protected] and Nick Mariani | [email protected]

[1] GF Data August 2024 M&A Report