With the midterm elections behind us, business owners and dealmakers are asking what the results could mean for mergers and acquisitions. Owners contemplating a sale are weighing whether now is the right time to move forward as well as what it could mean for valuation. For lower middle-market transactions of $10 million to $100 million in enterprise value, election results are more nuanced than the headlines suggest.
The midterms can affect M&A, but they are unlikely to turn the market on or off. Their influence will be felt through factors that already matter, such as financing, tax policy, industry regulation and confidence in the economic outlook.
Financing Still Matters More Than Politics
Financing conditions continue to be one of the biggest constraints on lower middle-market valuations. Debt remains considerably more expensive than during the low-rate period that fueled the M&A boom. As of early November, the effective federal funds rate was approximately 3.9%, while the bank prime rate was 7%.
Borrowing costs affect what a buyer can pay. For example, a $50 million acquisition financed with $25 million of debt incurs $500,000 more annual interest at 9% than at 7%. For financial buyers, that difference flows through the investment model. Inflation, Treasury yields, credit spreads and lender appetite may therefore have more impact on lower middle-market M&A than the composition of Congress.
Taxes Could Affect Transaction Timing
Owners and their advisors should be watching capital gains taxes, estate and gift taxes, business-interest deductions and depreciation provisions. Changes in these areas can alter the after-tax economics of a transaction. Even the expectation of a tax change can affect timing. If owners believe capital gains rates could increase, some may accelerate a planned sale. If they expect more favorable business provisions, they may wait.
An owner should not make a major transaction decision based solely on what Congress might do as tax legislation is difficult to predict. A better approach is to model several scenarios and ask yourself if the potential tax benefit from waiting is greater than the business and market risk of waiting.
Policy Changes Will Affect Some Industries More Than Others
The election’s impact will not be uniform across the lower middle market. Federal policy could have little effect on some businesses but materially affect the earnings, risk and valuation of others.
Manufacturing & Distribution
Manufacturers, distributors and businesses with significant imports remain exposed to changes in tariffs and trade policy. Buyers evaluating these businesses are likely to scrutinize supplier concentration, country-of-origin exposure, the ability to pass higher costs to customers and whether recent margins are sustainable.
Healthcare
Healthcare organizations may be sensitive to reimbursement and regulatory policy, government contractors to federal spending priorities, and energy businesses to changes in incentives and regulation. In each case, the greater consideration is how potential policy changes may influence future cash flows, rather than the election outcome alone.
Construction
Data-center expansion has created opportunities for electrical, mechanical, site and other specialty contractors. At the same time, concerns over power availability, water use and local impacts have led some communities to impose moratoriums or additional restrictions. For contractors with data-center exposure, those decisions can affect backlog timing and certainty, making customer and project concentration important to buyers.
Political uncertainty can translate into transaction economics. Buyers may address it through valuation, seller rollover, earnouts or contingent consideration. Seyfarth’s 2026 Middle Market M&A SurveyBook found earnouts in 19% of transactions surveyed, up from 13% in the prior-year survey. Deals still get done, but buyers and sellers may need to be more creative about allocating risk.
Divided Government Is Not Necessarily Bad for M&A
It is tempting to assume that one election outcome is better for dealmaking. A unified government may make tax, regulatory and spending changes easier to enact, benefiting some industries while challenging others. A divided government can impede major legislation, but gridlock can also provide predictability. Buyers can price known risks, but uncertainty about the rules six or twelve months from now is harder to price. Certainty can matter as much as policy direction.
Focus on What You Can Control
Despite the election headlines, the fundamentals driving lower middle-market M&A remain in place. Private equity firms still have capital to deploy, strategic buyers continue to pursue growth, and business owners are navigating succession and exit planning. While policy changes may affect some companies more than others, the businesses that tend to command the strongest interest are still those with solid performance, a clear growth story and manageable risk. For owners considering a sale, the focus should be on understanding the factors that could affect their business and taking steps to strengthen their position, regardless of the political environment.
If you have any questions or are interested in learning more, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
