Keeping pace with Mergers and Acquisitions trends after a year like no other
With much of the pandemic-related uncertainty subsiding in the United States and businesses becoming accustomed to the new normal, some business owners might be thinking that they missed an opportunity to sell their business pre-pandemic. The good news is that the market for corporate deals has been strong in 2021, a positive sign for owners wanting to consider their exit options, now that the worst of the pandemic lockdowns may be behind us.
After a reduction in middle market mergers and acquisition deals at the onset of the pandemic, activity has rebounded and is flourishing. According to PitchBook estimates, 3,700 private equity (“PE”) deals were transacted in the first half of 2021, worth a combined $450 billion, while mega-deals of $1 billion or more surged. The reopening of the economy, the abundance of “dry powder” (capital that has yet to be deployed or invested) and the looming threat of a capital gains tax hike has incentivized business owners to take action before the end of the year.1
Alan Felder, Head of UBS’s “OneBank” partnership in the Americas between UBS’s Global Wealth Management and Investment Bank says, “The window remains open for owners of closely held, private companies who are seeking to sell. M&A dealmaking momentum has accelerated throughout 2021, resulting in one of the most active M&A markets on record. Several factors are driving the record activity, including a significant amount of available capital from private equity firms and corporations continuing to use M&A to adapt, evolve and drive growth as the economy recovers. Valuation levels are attractive, supported by reference public valuation metrics and a lack in supply of businesses available for acquisition.”
The continued positive impact of fiscal and monetary policy, low interest rates, increased government spending and the vaccine rollout are helping too. Coupled with potential tax changes and other planning considerations, now may be the optimal time for business owners to begin exploring strategic alternatives post-pandemic. An exit may well be one of the most significant financial events of a business owner’s life; therefore, it is important to not act with haste or go it alone. Instead, build a collaborative team of advisors who can support you in navigating the exit planning process.
“Only fools rush in”
As the economy restructures itself, you as a business owner might be receiving calls from private equity firms presenting you with what seems to be appealing offers. However, it’s important to stay patient and to establish a team (lawyers, financial advisers, accountants, investment bankers) that understands you and your business and can source potential buyers that meet your criteria for price, cultural fit and more. A sound team can help give you more options. Testing the waters is critical to dealing with business succession, rather than making a hasty decision upon the first offer.
Reflect on the future
As a business owner who is contemplating the sale of some or all of your business, you’ll want to factor in how much control you want to maintain as part of your decision. For many, a once in a lifetime pandemic has triggered deep reflection on the future and the value of one’s legacy. Perhaps you want to keep more equity in the business and lead it on its next path, or you might have come to the realization that the time is right to step away from the business and start a new chapter. Despite what direction you end up going, it is crucial that you find a business partner that understands the level of involvement you want and is vividly clear on your business succession plan.
Tell your story
During the peak of the pandemic, some business owners needed to completely change their business plan and search for innovative ways to make up for lost revenue. When going through a sale, in addition to sharing extensive amounts of data and information on the business to a prospective buyer, you as the owner will also need to articulate how your business handled the adversity during COVID. Be prepared to share your story about how your business was resilient and how it is now positioned to come out stronger on the other side. This shows that your business was able to sustain itself during a period of stress and helps present your business in its finest light. Working with a UBS Financial Advisor can help you navigate the pre-sale financial planning and can assemble the right professionals to achieve you and your family’s goals.
Steven Young is a Senior Vice President of Wealth Management for UBS Financial Services. He is the team lead for the Business Transition Consultants based in Indianapolis, IN.