The following is a guest post from Todd Albright, global chief revenue officer at Datasite. Opinions are the author’s own.
As the 2024 US presidential election approaches, CFOs and dealmakers are carefully considering how political, regulatory, and economic trends will shape mergers and acquisitions.
But while U.S. presidential elections always bring uncertainty, dealmakers are already factoring in how potential shifts in U.S. regulatory policies could influence the structuring and execution of deals. This heightened uncertainty has led 45% of global M&A professionals, across the U.S., U.K., France and Germany, to extend their transaction timelines in anticipation of possible election-related disruptions.
However, while the election carries a degree of market uncertainty, history shows that its impact on M&A activity may not be as significant as broader economic trends. Data shows M&A deal value has declined between election day and year-end in four of the last seven US election cycles, with double-digit gains recorded in only two cycles (1992 and 2004). This suggests that while dealmakers should remain vigilant about potential regulatory changes, the broader macroeconomic environment may play a larger role in shaping deal activity.
Economic trends take center stage
Economic forces, particularly interest rate changes, are having a more pronounced effect on dealmaking. The Federal Reserve’s September 2024 decision to cut interest rates by 0.5% has already been factored into many dealmakers’ strategies as evidenced by an increase in sell-side deal launches, which were up 17% in the first half of 2024 compared to the same period in 2023. This uptick in activity could signal increased announced deals in the next six to nine months.
That said, the cautious approach that has characterized much of 2024 is likely to persist. Buyers are increasingly focused on conducting thorough due diligence and gaining deeper insights into target companies before moving forward. Sellers, in turn, are expected to provide greater transparency, reflecting a more discerning approach to dealmaking in the current environment.
Risk assessment and deal timelines
One of the most significant challenges facing M&A professionals over the next 12 months will be risk assessment. This is a reflection of the increasingly complex landscape in which CFOs and dealmakers must operate, where geopolitical tensions, inflationary pressures and regulatory uncertainties all contribute to heightened deal risk. The time required to prepare a deal has increased by 27% in the Americas in the first half of 2024 compared to the same period in 2023, while the time required to complete due diligence has also grown. Additionally, the volume of content in virtual data rooms — a critical component of the due diligence process — has surged significantly per deal compared to last year.
This focus on risk management means that dealmakers prioritize quality over speed, ensuring that all potential risks are thoroughly assessed and mitigated before moving forward. For CFOs, this shift emphasizes the importance of having the right tools and technologies to streamline the deal process, manage risks effectively, and facilitate informed decision-making.
Leveraging technology to manage risk
Technology is playing an increasingly important role in mitigating M&A risks. Advanced technologies, including artificial intelligence and generative AI, can automate many manual, time-consuming tasks critical to the due diligence process. For instance, AI can streamline the organization and categorization of files needed for review, reducing human error and ensuring compliance with regulatory requirements.
Additionally, technology can help dealmakers manage the growing volume of information that must be reviewed as part of due diligence. By utilizing AI-powered tools, CFOs can gain deeper insights more efficiently, accelerating the deal process without sacrificing thoroughness. In a world where deal complexity is on the rise, having access to these tools can provide a competitive edge, allowing dealmakers to close deals more efficiently while managing risk effectively.
The path forward for M&A
As CFOs look ahead to 2025, they must be prepared to navigate a complex environment shaped by political, economic and technological forces. While the outcome of the U.S. presidential election may bring some uncertainty, the broader macroeconomic environment and the ability to manage deal risks effectively will likely have a more significant impact on M&A activity.
By focusing on thorough planning, leveraging the right technologies and remaining adaptable to changing circumstances, CFOs can help their organizations successfully navigate the M&A landscape and capitalize on emerging opportunities
