Thoughts for Deal-Making Buyers, Sellers, and Business Owners
If you listen to the show regularly, you know I like to periodically review M&A trends. Q4 of 2021 is no different! Right now, we’re seeing lots of interesting action. Deals have continued to be strong in this K-economy, which we saw throughout 2020 as well. Clearly some industries, like tech, logistics, and finance have been booming. Others, like restaurants, have struggled more.
If you were to search “2021 deals” right now, however, you’d find all sorts of positive reports. There is confidence in the economy right now. In addition, there is an unbelievable level of access to capital right now. Despite the fact that many deals have been done, the capital has not dried up.
No Good Deal Will Go Unfunded
I’ve heard this said multiple times in the last 18 months, and it continues to be true. There is available capital, and if a deal makes sense, it will get funded. From debt funder to minority and majority investors, money is moving in the deal-making world!
Interest rates have remained low, despite a bit of a push on inflation. That could be a blip, or that could indicate we are at the beginning of an inflationary period. Emerging from the pandemic could be creating a raise in prices, in addition to increases in wages and hiring difficulties. It’s impossible, at this point in time, to know if that will remain, worsen, or decrease.
We can see, however, that it has not put a damper on deals! Overall, this is a really strong period for M&A.
An Update on Capital Gains
There are those who have chosen to complete deals in 2021 based on the possibility that there will be an increase in capital gains rates in the coming year. This can be impactful at both a national and state level.
For example, Washington state has historically not had a capital gains tax, but they will be adding one in the upcoming year. Various states have discussed raising tax rates to gain revenue in some way, and this may be on the table in a number of legislatures. It pays to be aware of what’s happening in your state!
There is, of course, also the possibility of the national rate increasing. If you already had a deal on the table, or if getting a deal closed in 2021 made sense for your business, then there’s no harm in getting it closed out. I usually recommend, however, not rushing into a deal because of fear of possible changes.
At this point, there is nothing in sight to indicate that deals are going to slow down significantly. In fact, the fundamental factors, such as available capital and low interest rates, still favor deals. Deal-making will likely continue to be strong in 2021!
High Valuations, Valuable Companies
If you’ve built a valuable company, or have received a high valuation, this is a great deal-making time. I’ve seen numbers on the table that are nearly double what might have been offered in different times.
That makes selling or triggering your succession plan tempting!
There is definitely money on the table, and there might be deal-making opportunities available that you may not have anticipated a few years ago. It doesn’t hurt to be aware of all available options.
In fact, for the first time in my career, I’ve had multiple prospective clients who have come to me because the initial firm or connection they reached out to was too busy to take on their deal. I certainly respect their honesty in not taking on more than they can handle. (It’s also made me glad I’ve built a model that has the capacity to expand to accommodate additional deals when needed, and contract if needed as well.) What a sign of the times, however, when professionals are legitimately too busy to handle stepping into new profit or growth opportunities!
Successful Sectors
Finance, tech, and healthcare industries are absolutely booming right now, and they have been throughout the pandemic.
In fact, we’re especially seeing healthcare activity diversify a bit more. Now that many emergency/in-the-moment responses for the pandemic have slowed down, there is more capacity to look around a bit.
We’ve also seen that the decreased pandemic pressure has increased deal-making activity around the globe. In fact, mega-deals in the multiple millions and billions of dollars have surpassed past annual numbers already. International deals are thriving, and it seems there is access to capital and a desire to forge deals throughout the world.
Buyer Discipline & Seller Decisions
In this market, buyer discipline is a key element of deal-making. After all, buying high and moving too fast can ultimately end in ruin for buyers who overextend or fail to read the market. We’ve seen that before in boom-and-bust cycles.
The competition for good deals is intense, and that can sometimes result in lower returns over time. For that reason, it’s essential that buyers practice discipline as they go about deal-making.
For sellers, if you were already planning to enter into succession or buyout plans within the next year or two, it makes sense to move ahead. If you’re younger, however, or were planning to run your business for 5, 10, 20 more years, it might make sense to retain your business.
There is no cut and dried answer, and hindsight will always be 20/20. Entrepreneurs and business owners should consider selling. First, however, it’s worthwhile to take a step back and identify where your thinking and decision making is coming from.
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Ask where your identity is coming from.
Sometimes, a seller will be scared to let go of their company because they’ve become so enmeshed in being the CEO, founder, or operator that they don’t know who they would be without it. Choosing not to sell because you don’t know how to let go is not a strong position. Take the time to make sure you understand your identity apart from your business.
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Consider what life you want to create.
It’s at least worth considering what life you could create without your business. What would the best case scenario of selling be? What happens if you keep it? Take the time to consider all the options, and to be open to things going differently than you had expected.
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Don’t get hung up on chasing money.
Just because selling could be lucrative doesn’t mean it’s the right decision. I’ve seen people make great deals that ended very profitably, but they ended up disappointed because they ultimately hadn’t been ready to sell. They made a money-based decision that didn’t take their full needs and desires into consideration.
Remain Open to Possibility
Although this particular episode is focused on M&A, remember that those are only one type of deal! There are so many opportunities for deal-making, and there is no limit to what you can consider. If you’re priced out of the M&A market, you can look into other possibilities. In every market, there are ways to identify and complete deals.
Listen to the full solo episode here.
Corey Kupfer is an expert strategist, negotiator and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.
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