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Merger & acquisition activities are intricate transactions that many factors, including the political landscape, can influence. In an election year, the business environment is often marked by increased uncertainty and regulatory changes, adding an additional layer of complexity to M&A endeavors. Companies contemplating such transactions during these periods must be attuned to the unique challenges and opportunities that arise. This article explores what M&A activity may look like in an election year and highlights key legal considerations that companies should consider.
Market volatility and regulatory uncertainty
Election years are notorious for introducing market volatility and regulatory uncertainty. As political campaigns unfold, proposed policy changes can significantly impact industries and create an atmosphere of unpredictability. Companies engaged in M&A activities must monitor potential regulatory shifts affecting their business models, tax structures or compliance requirements.
Moreover, the election’s outcome may influence the direction and leadership of regulatory bodies, potentially altering the cause of the current proposed policy and introducing new initiatives and priorities of an agency. Companies should conduct thorough due diligence to assess the potential regulatory hurdles they may encounter and develop strategies to navigate them effectively should they arise.
Policy considerations
The policies advocated by candidates during an election year can have a profound impact on specific industries. Companies involved in M&A must carefully evaluate how proposed policy changes align with their strategic objectives. For example, shifts in health care policies, environmental regulations or trade agreements can directly affect the valuation and feasibility of certain deals.
To mitigate risks, companies should engage with legal experts who specialize in the relevant industry and can provide insights into potential policy changes. Establishing clear communication channels with policymakers can also prove beneficial in anticipating and adapting to shifts in the political landscape.
Timing and deal structure
The timing of transactions is crucial, especially in an election year. The uncertainty surrounding election outcomes and potential policy changes can lead to delays in deal execution. Companies should consider these uncertainties when setting negotiation timelines, regulatory approvals and closing deals. Flexible deal structures that accommodate potential regulatory adjustments or policy changes may be advisable, providing parties with the ability to adapt to changing evolving circumstances.
Legal due diligence
Thorough due diligence is paramount in any transaction, but it takes on heightened significance in an election year. Companies should scrutinize existing contracts, regulatory compliance and potential litigation risks with increased diligence. Assessing the target company’s exposure to regulatory changes and political risks becomes crucial to understanding the long-term viability of the deal.
Attorneys should delve into the target company’s history of regulatory compliance, potential liabilities and litigation risks that political or regulatory shifts may exacerbate. Robust due diligence can identify and mitigate potential legal challenges, ensuring that the acquiring company is well-informed and better equipped to navigate the complexities of an election year.
Communication and stakeholder management
In times of political uncertainty, effective and appropriately timed communication becomes a strategic imperative. Companies engaged in M&A activities should proactively communicate with stakeholders, including employees, customers and investors. Clearly articulating the rationale behind the transaction, addressing potential concerns related to political uncertainties and providing assurances about the robustness of the deal can help maintain confidence and support.
Election years can still yield successful deals
Deal-making during an election year presents unique challenges and opportunities. Companies must carefully assess the potential impact of political and regulatory changes on their business objectives and conduct thorough due diligence to navigate the complexities of the transaction. By staying informed, engaging with knowledgeable legal counsel and adopting flexible deal structures, companies can position themselves to navigate the uncertainties that often accompany election years successfully, ensuring the long-term success of their transactions.
William Barrett is the CEO of Mandelbaum Barrett P.C., a full-service law firm in Roseland. He has over 25 years of corporate law experience and can be reached at wbarrett@mblawfirm.com.
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