The Impact of the Election on the M&A Outlook for 2021

Precautionary pandemic measures dampened mergers and acquisitions (M&A) in 2020, making dealmakers nervous about the viability of deals already in the pipeline. M&A already planned or underway often came to a screeching halt—or at least met with significant delays—as travel and the in-person meetings necessary for due diligence and trust-building were significantly impaired. While the end of 2020 saw a renewed vigor in the M&A industry, many proceeded with caution pending the outcome of the US election.

The results of any presidential election are bound to have an impact on business, but that may be especially true heading into 2021. With Joe Biden winning the presidential election and neither party winning a large majority in Congress, dealmaking prognosticators anticipate fewer surprises in federal legislation in 2021, conditions that could create smoother sailing for the M&A outlook for 2021.

Areas of Concern for M&A in 2021

Mergers and acquisitions are always sensitive to a variety of external factors. Significant fluctuations in the economy may hinder or hasten M&A in a particular industry. Interest rates impact financing. Global economic or political affairs can grease the wheels or throw a wrench in the works of international deals. In some cases, the extent of changes in regulation may foster deals or foment existing ones. 

Although professional dealmakers are optimistic about M&A potential in 2021, they acknowledge the existence of continuing issues, such as the potential for COVID-19 pandemic control, changes in US tax laws affecting businesses, and shifts in legislation or government regulations.

The proliferation of the novel coronavirus in 2020 severely limited travel and the opportunity for on-sight visits for M&A due diligence, not to mention the much-needed person-to-person engagement to build relationships. Mergers and acquisitions in all stages were affected. Promising reports of effective vaccines create hope for less impact in these areas in the coming year.

Elections often greatly shift political policies on taxation and regulation. For instance, President-Elect Biden’s tax plan includes the taxation of carried interest at capital gains rates and increasing the corporate tax rate from 21 percent under the Tax Cuts and Jobs Act to 28 percent. And increased antitrust scrutiny is very possible under the Biden administration.

The Effect of a Divided Government on Mergers and Acquisitions

Many view the divided government—a Biden White House and a Congress without a strong Democratic majority—as the best possible result for post election M&A activity. The Democrats retained control of the House of Representatives, but the Senate result is less clear. The runoff election on January 5 could give the Republicans a slight majority or result in an even split. In either case, Congress seems poised to hold the Biden White House back from rushing through tax code or regulatory changes that could impact post election M&A activity.

The tax code changes Biden has proposed would require legislation. There is no guarantee that the divided Congress—even with an evenly split Senate—would be easy to push through. Similarly, the president-elect has complained that antitrust regulation should be more aggressive, but, without a strong majority across both legislative bodies, achieving enforcement is by no means a certainty.

Aside from these global areas of impact, the election results may impact various industries differently. Hospitality and travel remain hard-hit by the pandemic, hurting dealmaking in those areas. Alternatively, the pandemic has driven a boon to some technology businesses, especially those facilitating home-based work. Similarly, after taking an initial dip, M&A in the healthcare industry rebounded later in 2020, and the high demand for healthcare services in the pandemic may be helping drive dealmaking in this sector.

Xavier W. Staggs: An M&A Attorney in WV Helps Smooth the Way for Dealmaking in 2021

The election results clearly impact the M&A outlook for 2021, but many other factors also impact these deals. Whether you’re considering M&A as a growth strategy or as a way for your business to survive the pandemic, such as the hardships faced in the hospitality industry, anticipating and understanding the steps of a merger or acquisition are key to its success. And the holder of that key is an experienced mergers and acquisitions attorney.

Xavier W. Staggs at Jenkins Fenstermaker, PLLC in Huntington, West Virginia (WV) has the experience and drive to guide you through the M&A process, from exploring your options to due diligence and developing and pursuing your M&A plan. An entrepreneur and experienced M&A attorney in WV, he shares his insight and provides M&A and other business services to companies in and around the state. To learn how Xavier can help you and his M&A outlook for 2021, set up a consultation by calling (304) 523-2100 or complete this online contact form.