How will the US election impact M&A? Morgan Stanley answers

The upcoming US election is poised to influence the mergers and acquisitions (M&A) landscape, but according to Morgan Stanley, a robust M&A cycle is anticipated regardless of whether a Democrat or Republican wins.

“A D [Democrat] win would likely be supportive of the current strong economy, a key driver for M&A,” while “an R [Republican] win potentially favors a more supportive regulator,” notes Morgan Stanley.

Despite the political uncertainty surrounding anti-trust enforcement and geopolitical implications, Morgan Stanley analysts are confident that these factors will not halt the “return of M&A.”

They highlight that 2023 witnessed the lowest level of global M&A, adjusted for the size of the economy, in over 30 years. However, this trend is reversing significantly, with activity already increasing year-to-date.

Analysts expect M&A volumes to continue rising in 2024, driven by strong equity markets, open new issue markets, incoming rate cuts, and positive industry expectations.

Historical data on presidential election cycles shows mixed impacts on M&A announcements, says the bank. Analysts reviewed the last seven election cycles and found varying results, from a 45% decline during George W. Bush’s first term to an 88% increase in his second term. The median change was a modest -2%, indicating that M&A cycles are more influenced by macroeconomic indicators than election outcomes.

Morgan Stanley adds that a hypothetical Trump win could marginally ease anti-trust enforcement, potentially encouraging higher levels of large-cap M&A.

Although, they add that there may be only slight differences between a second Trump term and a Biden administration regarding anti-trust enforcement, removing the uncertainty of the election outcome might boost large-cap deals.