As investors have been trying to gauge the impacts of the upcoming U.S. presidential election and the candidates’ potential policies on key financial issues, such as monetary and trade policy, the nascent recovery in mergers and acquisitions activity has been top of mind.
According to Morgan Stanley Research, November's presidential election shouldn’t halt the momentum in global deal activity that is helping reverse downward trends in M&A, which in 2023 hit the lowest level in more than 30 years, adjusted for the size of the economy.
"We expect M&A activity to rise further in 2024 in a multiyear recovery," says Ariana Salvatore, Morgan Stanley policy strategist. “So far, we aren’t seeing evidence that the election is having a significant impact as deal announcements and completions continue to build.”
Deal cycles tend to depend less on policy and more on broader factors including the overall state of the economy, fluctuations in business activity, CEO confidence and financing conditions. More specifically, still-low activity levels, strong equity markets, the opening of new markets, impending interest rate cuts and positive industry expectations also can help M&A recover, even if there are political challenges.
Policy Takes a Back Seat
A review of M&A activity in the last seven election cycles yielded a wide range of results, from a 45% decline in M&A announcements during George W. Bush's first term to an 88% increase in his second. The overall median change was a modest -2%.
“These mixed results make sense, as M&A cycles are much more driven by leading macroeconomic indicators than by policy," says Salvatore.
One area of potential investor focus is the next administration’s approach to antitrust regulation. But while antitrust enforcement is important, most deals are not affected by it. “The vast majority of deals are small—more than 99% are worth less than $5 billion—and often take place in industries that are too fragmented to raise monopoly concerns,” says Salvatore.
Moreover, while the general assumption is that a Democratic administration would maintain the status quo and a Republican win could hypothetically lead to an easing of regulations, analysts expect only minor departures from current antitrust policy, as the parties have aligned to some degree on enforcement. During his term, former President Donald Trump's Justice Department pursued various antitrust cases across several sectors, and subsequently the antitrust environment during President Joe Biden's administration has been the toughest in decades, with 37 deals abandoned as of June 2024.
Lawmakers of both parties have supported some aspects of government oversight of M&A. Among conservatives, for instance, Republican vice-presidential pick Sen. JD Vance and Rep. Matt Gaetz have praised current Federal Trade Commission Chair Lina Khan.
Common Factors
All in all, it is possible the antitrust environment under a second Trump administration could look similar to the Biden era, albeit with a lighter touch, while Democratic nominee Vice President Kamala Harris is expected to maintain a consistent approach if she were to win the election. With this in mind, analysts highlight three main factors for scrutiny of potential deals, regardless of the outcome of the election:
1. Sectors and industries: Both parties generally agree in their antitrust approach to technology companies. Public opinion surveys have shown that voters of all persuasions appear to favor "breaking up big tech" as they believe companies have grown too large and exercise too much control. On the other hand, the parties could diverge over the oil sector amid media reports that a potential second Trump administration may ease that industry's M&A oversight.
2. Geopolitics and national security: Concerns about the latter in particular are coming up more often in relation to M&A involving overseas actors, and Trump and Biden have both taken steps as president to limit investment with key global rivals such as China. Deals involving foreign companies, especially those from geopolitical adversaries, may face more scrutiny as these concerns become more relevant in regulatory reviews.
3. Key constituencies, specifically labor groups: Trump and Harris are in close competition for the support of key labor groups, which could be crucial to winning the presidency and could mean that the next president might evaluate deals in large part based on their impact on this cohort of voters.
For example, Biden, Harris and Trump are all in agreement that the proposed sale of a U.S steel maker to a Japanese rival should not go ahead, expressing concern about how it might affect American jobs. Thus, how responsive the administration is to groups like labor unions could influence which deals face tougher antitrust review under the next administration.
