The 2024 presidential election is right around the corner. M&A advisors prognosticate about how each election cycle will affect M&A, and 2024 is no different. Since 1996, deal volume and deal values are 8%-10% lower in presidential election years than the year following presidential elections, and the effect is felt more acutely at the lower end of the middle market. This is largely due to general uncertainty based on the presidential election and policy priorities and questions about congressional make-up following the election. The question is whether 2024 will buck that trend.

Deal volume and deal values in middle market M&A have been down since 2022 largely due to high interest rates, global conflict, and a disconnect between buyers and sellers on deal valuation expectations. However, there are multiple factors that weigh in favor of a relatively strong 2024 M&A market. First quarter deals saw a 36% increase in global deal value year over year. Interest rates have stabilized since mid-2023. The amount of private equity dry powder is approaching $3 trillion dollars, and cash on the balance sheets of strategic acquirors is close to an all-time high. Both strategic and financial buyers are actively looking to put that money to work. In addition, private equity is encouraged to dispose of portfolio assets to provide returns to investors. The economy is largely in a strong position despite high interest rates, and middle market companies are performing well despite some headwinds caused by increased employee, insurance, and capital asset costs. The biggest unknown that could cool the market is the identity of the next president and the congressional make-up coming out of the coming election and how that will impact policy choices with respect to taxes and regulations.

In the 2024 election cycle, there may be less uncertainty than in other elections because the two presidential candidates are known entities. Their policy choices are largely known. In addition, based on the current level of congressional gridlock, there is a low likelihood that there would be significant legislative changes in the next congress. There are, however, certain policy priorities that could affect seller decisions to exit in 2024, rather than to wait until 2025. In President Biden’s State of the Union speech earlier this year, he mentioned several fiscal priorities that indicated a focus on increasing taxes on high income individuals and increasing the corporate tax rate. In press statements following his State of the Union speech, the administration announced its intention to double the capital gains tax rate to 39.6% for investors earning more than $1 million per year. These prospective changes in the tax code may motivate potential sellers to accelerate deals to close by year end before any potential tax changes could be enacted next year. 

As political rhetoric heats up as the election nears and factoring in a potential Fed rate cut and the amount of capital that is ready to be deployed by financial and strategic buyers alike, the M&A market could be stronger than usual for presidential election years.