While the economy is still taking some time to get back to pre-covid levels, that doesn’t mean that you can’t sell a business. In fact, right now could be one of the best times in recent years to sell your company! In today’s article, we’ll go over the main factors behind what makes this year such a good one for selling businesses.
The Main Factors
2021 has been a record-breaking year for mergers & acquisitions. According to Fortune.com, the global total for M&A deals has totaled around 2.4 trillion dollars through the start of June. This is an increase of 158% over the same period from 2020. All of this has come after an unprecedentedly strong back-half to 2020. What are the main reasons for this?
Interest Rates. One reason is that interest rates have remained low throughout the end of last year, and the first half of 2021. This has allowed buyers to get capital at relatively lower prices. With the economy continuing to open up, the increased confidence, combined with the cheaper capital, has the potential to keep the M&A sector strong.
SPACS. Along with this, the rise of Special Purpose Acquisition Companies (SPACs) has helped to boost valuations. To give a brief overview of SPACs, these are shell companies whose sole purpose is to identify private companies to take public. To this, Morgan Stanley says that “[SPACs] may continue to be a significant presence among bidders in the 2021 M&A market, as their finite window to identify transaction targets creates urgency and public market valuations exceed that of private companies in many sectors.” These groups, and the boom in M&A in general, have led to higher than normal market valuations, which is advantageous to potential sellers.
Consolidation and Roll-Ups. Consolidation and roll-ups are also driving M&A in the lower middle market in fragmented industries such as managed IT services, recession-proof services such as commercial plumbing and HVAC, and engineering firms. PE firms and strategic buyers are seeking out companies whose operations synergize with their current portfolio, or where a new location will advance the company’s overall strategic goals.
Covid-19 Effects. Companies who saw significant growth because of Covid-19 are attracting buyers, particularly when sellers are ready to make an exit, particularly if they are interested in selling when their business revenue is trending upward. On the flip side, some businesses hit hard by Covid-19 are looking for acquisitions if the owners don’t want to spend the time and effort to grow the business in a down cycle. However, as business owners in previously impacted sectors get a clearer idea of the future, vaccination rates continue to rise, and the economy continues to recover, these businesses will be poised to benefit from buyers who have been waiting for certain industries to recover before they sell. Sellers in these industries can expect the back half of 2021 to be potentially fruitful.
Low Tax Rates. Finally, business owners are selling while capital gains taxes are lower than expected in the future. Many business owners wish they had a crystal ball to determine whether, when and how much Congress will increase the capital gains tax. Some business owners are working to get deals closed in 2021 with the hope that they will continue to benefit from the current capital gains tax rates.
The Take-aways
2021 is a fantastic year to sell a business. It has already been a record breaking year, and there are reasons to believe that it isn’t slowing down anytime soon. From low interest rates, to high valuations, to expected rebounds in previously impacted sectors of the economy, 2021 is extremely promising for sellers.
If you have an interest in selling your company don’t hesitate! The market for companies is hotter than it’s been in years, and the time to sell is NOW. At Seck Advisor Group, we are ready to help you take advantage of the favorable market conditions being experienced right now. Contact Sheila Seck at sseck@seckassociates.com or 913.815.8485 to answer your questions.
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