President-elect Donald Trump’s victory may push some M&A deal announcements into early next year, as firms feel more confident that current tax rates will remain in place in coming years, according to several industry experts.
The looming potential for tax rate changes depending on the election’s outcome led some firms to race to close deals in 2024, as Kamala Harris had pledged to increase taxes on long-term capital gains, which could have impacted dealmakers’ profits. Additionally, the Tax Cuts and Jobs Act passed in 2017 during Trump’s first term was set to sunset next year.
Trump’s victory means the rates enacted in that bill are likely to be extended, according to Jessica Polito, the founder and principal of Turkey Hill Management, which counsels firms on M&A deals.
“I think some of the deals that were being pushed to close by the end of the year will be on track to close,” Polito said. “Others that really could have benefitted from another week or two can now take that week or two.”
According to DeVoe & Company, this past October, RIA M&A activity had the highest monthly transaction volume on record, with 39 deals in total. It surpassed the previous record of 33 deals in January 2021. Year-to-date through the end of October, deal volume was up 12% from last year, with 232 deals in total. Overall, 83% of the deals involved private equity or private equity-backed firms, compared to DeVoe’s typical recorded average of 70% of RIA deals.
Despite the tumult and volatility surrounding the election, the industry’s M&A environment is “as robust as we’ve ever seen,” according to Alaris Acquisitions CEO Allen Darby. The industry’s demographics (with older owners seeking to sell) also suggest that the trend is unlikely to abate anytime soon.
“Then you couple that with the depth of the buyer roster (that) is substantially larger than what it was in years past, with new buyer entrants and capital providers coming into the fold,” Darby said. “So both of those things continuing to mature, in my view, sets up the stage for a very active M&A market for the foreseeable future.”
Along with the election’s outcome, the industry (and the country as a whole) has eyed the Federal Reserve, which in recent months announced two cuts to the target range for the federal funds rate for a cumulative 75 basis points (with indications of additional cuts in the coming year) after a multi-year run of hiking (and holding) rates while combating inflation.
When asked the day after the election, Polito speculated the Fed had been holding back from announcing rate cuts immediately before the election to avoid the appearance of playing politics. Sure enough, the Federal Reserve cut its target by 25 basis points the following Thursday.
“And I think the implication as far as M&A goes is that we might start to see a shift back to more cash and less equity in transactions as borrowing continues to get cheaper,” she said.
Darby agreed and said most advisors are factoring in a “minor reduction” in today’s interest rates rather than more drastic cuts.
But Darby’s question mark for Trump’s agenda remained his tariff proposals, where it remains to be seen whether proposed tariffs of 60% to 100% on Chinese goods and tariffs between 10% and 20% on all imports are “saber-rattling” or will fully come to fruition. Darby said this could impact inflation and market volatility, but he expected most volatility to be short-lived.
“If the market is performing well, wealth management businesses are going to do great,” he said.
