How are Tax Law Changes Impacting M&A Activity?

By Generational Equity


According to many analysts, the impact of new tax laws enacted at the end of 2017 are having, and should continue to have, a profound impact on M&A activity, and consequently how business owners approach selling a company.

We have discussed this in previous blogs, and the significance of these tax changes on selling a business shows no signs of slowing in the current market.

According to Ralph Della Ratta, CEO of Citizens Commercial Banking, some key portions of the legislation include:

  • Significant amounts of capital being repatriated back to the U.S. (estimated at $3 trillion)
  • Free cash flows are now much greater because of the substantially lower tax bite

According to Mr. Ratta, “The M&A market is going to benefit greatly from these changes.”

We concur with this assessment of M&A activity going forward based on what we have seen year-to-date in our own firm. At this point, we are approximately 17% ahead of last year in terms of deals closed – and last year was a record year for us helping business owners secure their optimal exit.

How are New Tax Laws Stimulating the M&A Industry?

Now certainly not every dollar repatriated, nor each one saved from lower tax rates, will be used for M&A transactions. However, as we have noted before, the fastest, most efficient and profitable way to grow a company is via acquisitions.

Even with a faster-growing economy, 5% organic growth simply does not present the same opportunities as an acquisition does, where post-close revenue and earnings can grow dramatically. These tax changes are important to know when selling a business, as the impact of this new tax legislation will continue to make this approach to company growth even more viable.

The tax law changes have only added fuel to the fire of one of the strongest seller’s markets in M&A in recent memory. With significant capital on the sidelines with private equity firms waiting to be invested, as well as the emergence of new types of business buyers, like family offices and offshore buyers, the number of deals expected to close this year should eclipse our record year of 2017.

Can You Benefit from these Tax Changes When Selling Your Business?

But, this important insight into current M&A activity only really matters if you, as a business owner, are prepared to take advantage of this market cycle. History tells us that it can take 7-10 years for a seller’s market to return once it ends, and these cycles present a great opportunity to sell your business for the maximum value.

To find out if you are ready, I invite you to attend a Generational Equity exit planning conference. We hold these regularly throughout North America, and they are designed to help business owners learn how and when to sell their business, and outlines the key steps involved in an optimal exit.

Let’s face it: Most business owners delay any exit planning until external circumstances force them to. That typically is not a good course of action, as it usually leads to undervaluing your company and negatively impacts the funds left over for the owner(s) once the deal closes.

What we are suggesting is that you create a well thought-out, planned exit strategy, one that optimizes the significant value you have built into your company and generates the largest return for you. That way, during times of significant M&A activity, you are prepared to capitalize and create the future you deserve.

How Do I Start the Journey to Selling My Business?

As mentioned, a great first step is attending a Generational Equity exit planning conference. Completely complimentary and highly educational, in just a few hours, your knowledge of M&A strategies will improve immensely.

To find one near you, click here. To learn more about Generational Equity, please use the following links:

Plus, you should also subscribe to our M&A insights blog for effective guidance in how to prepare and time your exit strategy and learn the latest updates from our industry.

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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