Tax Reform and 2018 M&A Activity

By Generational Equity


Based on the input of several M&A experts, the general consensus is that the recently passed tax reform legislation will add fuel to the current strong seller’s market in 2018. This is how The Wall Street Journal put it in its December 21st issue:

The starting gun for the latest deal-making wave went off a couple of months ago when the contours of the tax bill started to come into focus. Now with the plan nearly done, mergers and acquisitions should accelerate next year.

One big positive for prospective sellers is that the lower 21% corporate tax rate will reduce the tax bill to companies that sell off business units. Another is the lower [tax] rate will give companies more cash to spend, especially at a time when share buybacks are less attractive because of high stock prices.

Finally, [and] companies with overseas cash will be able to bring it home.

We concur with this analysis. The dramatically reduced corporate tax rate, cut from 35% to 21%, will throw more cash to the bottom line and give corporate buyers added incentive to use the capital on a variety of business expansion strategies, especially M&A activity.

As The Wall Street Journal described it:

The tax bill was a gift to business. For some it will be a wedding gift.

Merger and Acquisition magazine recently interviewed Nixon Peabody partner Richard Langan Jr. who came to a similar conclusion:

I think there is a lot of enthusiasm in the middle market. There was a lot of uncertainty this year in M&A due to political uncertainty in Washington.

Now that the uncertainty relating to tax reform has been lifted, it is reasonable to assume that buyers who were on the sidelines during the latter half of 2017 will now more aggressively pursue their M&A plans in 2018.

Mr. Langan added:

There will be great investments by some companies including on infrastructure. It will cause them to make some M&A decisions particularly on the buyside. I think strategics, particularly in the middle market, will benefit from the reduction in corporate taxes.

This may also cause some family funds to consider M&A as opposed to interfamily transfers.

Will Tax Reform Spur Your Exit Strategy?

Last year was record year for Generational Equity in terms of deal closings. Given the trillions of dollars that will be available for investing purposes, combined with an expanding economy and interest rates still at historically low levels, we believe that the tax reform will simply add fuel to the active seller’s market we have been in the last few years.

Because of these reasons, we are strongly suggesting to business owners who attend our exit planning conferences that they prudently examine their options in the marketplace now rather than waiting.

History is littered with deals that were passed up in 2000 and 2008, right before two recessions hampered M&A activity. Since all seller’s markets eventually end, now is the time to act, as it takes 9-14 months to close most deals with optimal buyers.

If you are interested in learning how you can take advantage of the current seller’s market and the aggressiveness of today’s buyers, please contact us at 972-232-1121 or send us your information via our contact page and we will be in touch.

It really behooves every owner of a business today to investigate current M&A activity and the opportunities it offers.

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

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