How does an election year impact M&A activity?
Election years often bring a unique set of uncertainties that can have a notable impact on mergers and acquisitions (M&A) activity. Here’s how election dynamics generally influence M&A trends:
- Uncertainty in Policy and Regulation
As elections approach, policy stances on taxation, trade, antitrust regulation, and industry-specific rules become focal points. Companies may hold off on M&A deals if they anticipate significant regulatory changes under a potential new administration. For example, if a candidate promises stricter antitrust enforcement, some businesses may hesitate to pursue mergers that could draw scrutiny. - Valuation Fluctuations Due to Market Volatility
Elections can cause stock market volatility as investors react to shifting political forecasts. This market fluctuation impacts company valuations, which can affect M&A. If prices become too uncertain or inflated, buyers might delay acquisitions, or sellers may decide to wait until valuations stabilize post-election. - Changes in Access to Capital
Election uncertainty can make lenders cautious, which impacts financing options for M&A. This is especially true in deals that rely heavily on borrowed capital, such as leveraged buyouts. If lenders anticipate economic instability, they may tighten credit standards, leading to higher costs for financing M&A transactions. - Industry-Specific Impacts
Some industries are more affected by potential election outcomes than others. Sectors like healthcare, energy, technology, and defense are especially sensitive to shifts in policy. For instance, potential changes in healthcare policy could delay deals in pharmaceuticals or insurance until there is more clarity on the regulatory outlook. - Cross-Border M&A Caution
Foreign companies may hold back on acquiring U.S. companies during election years due to concerns about trade policies, tariffs, and foreign investment restrictions that could change post-election. Similarly, U.S. firms may hesitate to pursue international acquisitions if there is uncertainty about foreign policy directions. - Opportunistic Buying
Some companies view election-related volatility as an opportunity, targeting undervalued assets or businesses with strategic advantages. Private equity in particular may become more active if they see an opportunity to acquire assets at lower valuations during market fluctuations.
Ultimately, M&A activity during an election year tends to reflect a balance between strategic goals and the level of risk companies are willing to take. Many deals do proceed, but firms are often more conservative in the timing, pricing, and structuring of transactions to manage election-related uncertainty. We’re happy to talk through this in more detail, contact us here
