Media Coverage – Business viewpoint: How a presidential election affects the sale of businesses:
In most prior election years with an incumbent president, there has been a slowdown in mergers and acquisition (M&A) activity from October into mid-November, but how about 2016?
In 2016, most experts got it wrong. Prior to the 2016 presidential election, commentators were predicting a slowdown in mergers and acquisitions after Labor Day, which was expected when there was no incumbent in the race, but the opposite occurred — 2016 was an exception and may be the new rule.
According to Dealogic, U.S. companies struck $248.9 billion of merger and acquisitions in October 2016, the month prior to the presidential election, topping the previous record from July 2015. In fact, in the week before the election there was a single-week deal value record of $177 billion in mergers and acquisitions.
At ClearRidge, we have a sense the same may be true in 2020, as we have experienced a significant pickup in January with businesses preparing to sell in 2020. Companies across Oklahoma are benefiting from a low-cost credit market, solid economic growth and a promising outlook.
For business owners looking to exit, many have concerns of a slowdown under a new administration.
If they are looking to sell in the next five years and have had a strong 2019, there may be no better time to sell in the foreseeable future.
This is especially true for founder-owned companies in the middle market, with revenue from $10 million to $100 million.
There is potential to miss out on this window and to hold out for the next positive cycle three to five years out.
None of us can accurately predict the future and closing a transaction before November 2020 would lock in recent valuation gains and eliminate future risk.
How about after the election in 2021?
Analysts were also wrong in 2016 about the deal environment after the election. In April 2016, there was a survey among M&A transaction professionals by Intralinks Global that predicted a 45% slowdown in U.S. deal-making in the event of a Trump administration.
The opposite occurred, with a buoyant economy and increased deal making through the end of 2016 and 2017.
We don’t yet have 2020 survey data, but we know there is uncertainty leading into the 2020 presidential race, which is challenging for the deal market and for CFOs.
Executives need to understand both scenarios; the re-election of the Republican administration or a possible new Democrat administration and the impact on the business environment.
We are currently in a favorable tax, regulatory and business climate.
Steering clear of political party affiliation, another four years of an incumbent administration is mostly understood by company executives, while a new administration would bring uncertainty in regulatory policy, anti-trust policy, monetary policy, and tax policy, all of which can create challenges or opportunities for business and business acquisitions.
Selling a business in 2020
If you would like to remove the uncertainty of a presidential election, you should complete the sale of your business before October 2020, which is eight months away.
Most founder-owned companies need deep pre-emptive due diligence to clear hurdles in a successful transaction.
Current high valuations and a late stage economic cycle make it more challenging to clear due diligence in a transaction, as buyers are bringing in every type of outsourced due diligence to scrub every detail of the business, both historically and as an integrated entity under new ownership.
In recent transactions, we’ve had more than 30 outside due diligence professionals engaged on the other side of a single transaction — ranging from benefits, HR, accounting, tax and legal to environmental, operations, pricing and margin analysis, information technology and intellectual property.
Diligent preparation is critical, and it takes time. You would need to start the process today.