M&A demand for middle market businesses will remain strong in 2021!
This is how Dykema/ACG summed up their findings:
Reflecting strong U.S. M&A activity in the first quarter of 2021, respondents to the Dykema and Association for Corporate Growth-Detroit’s Spring 2021 M&A Flash Survey overwhelmingly expressed optimism for U.S. M&A activity in 2021, with more than 70% expecting the U.S. M&A market to strengthen in 2021 compared to 2020.
Five key items were expected to fuel this growth:
NDAs (non-disclosure agreements) and LOIs (letters of intent) are both key documents that are signed at critical stages of the acquisition process. Generally, NDAs are initial indications of interest by a buyer signed to protect the confidentiality of the seller; LOIs are created before due diligence and are a good indication that a deal will most likely close in 60-90 days.
Each of these alone would signify a dramatic year for us and, more importantly, for our clients. Collectively, to have so many key categories increasing simultaneously (and in significant fashion) is indicative of just how much pent-up demand is out there among professional buyers for middle market companies.
But according to the Dykema/ACG survey:
One potential dark cloud looms large over U.S. M&A activity according to our survey respondents – potential tax increases in the U.S. Two of the top three threats to U.S. M&A in 2021 that our respondents are worried about relate to increased tax rates, at both the corporate and individual levels.
This issue is critical to you as you consider your exit. It boils down to this:
How much cash do you want (need) to retain, after taxes, once you close a deal with a buyer for your business?
Given the complexity of this topic (and the critical importance it has to owners of privately held businesses), we strongly encourage you to meet with your tax and M&A professionals sooner rather than later.
Given the tax proposals already suggested by the Biden administration, it is safe to assume that corporate, individual, and capital gains taxes will potentially all increase after the current tax year ends. This is something that you seriously need to factor into your exit timing.
Thankfully, our clients have access to Generational Wealth Advisors, our wealth management team that works closely with our dealmakers to create wealth management plans long BEFORE a deal closes, enabling our dealmakers to negotiate the most advantageous tax reducing deal structures possible for our clients.
If you are interested in learning more about the current (and expanding) seller’s market, and how you can take advantage of it BEFORE proposed tax increases take effect, I would suggest that you reach out to us to attend a Generational Growth and Exit Planning Conference near you. Use the following links to learn more about how you can do this:
If you would like to see the entire results of the Dykema/ACG survey, you can download it using this link:
And special thanks to our friends with both Dykema and ACG for providing such a timely and thought-provoking survey!
Carl Doerksen is the Director of Corporate Development at Generational Equity.
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