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How will the 2020 Election Impact Business Valuations?

How will the 2020 Election Impact Business Valuations?

The possibility of a change in the presidency or Congress has raised questions about how business values and M&A activity may be impacted.

If the Democrats secure the White House and Congress, a Biden administration is likely to push through a corporate tax hike.  Under Biden’s proposed tax plan, the corporate income tax rate would rise to 28% from 21%.  While still below the 35% tax rate that previously existed, this would have a negative impact on cash flows and business values.

Biden has also voiced support for a hike on capital gains taxes.  This could negatively impact M&A activity but may be a positive for ESOP transactions where selling shareholders could be entitled to a tax-free rollover.

Additionally, if Democrats were to gain control of the Senate, some believe that lawmakers may be emboldened to pass laws such as the Stop Wall Street Looting Act, which would restrict private equity activities.  This could take a group of buyers out of the market resulting in decreased demand for companies and lower prices.

Some industries like health care may benefit from the change.  A Democrat in the White House will likely bring increased coverage, expanded benefits and increased funding to Medicaid and Medicare.  This could be a boon for health care companies.

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