Why 2021 M&A Activity Is So Strong… And What It Means To A Business Owner

A CORTLAND ADVISORS LETTER TO OUR CLIENTS AND FRIENDS

Cortland’s obligation to our clients is to align all the factors that drive overall enterprise value, which is why we constantly watch the market and track what buyers are doing and what they are looking for.

Our job is to educate our clients on the internal and external factors that determine valuation. When it comes to selling a business, timing matters.

The Reasons for Record M&A Activity in 2021

Buyers have money

Financial buyers (private equity firms & family offices) have capital. The disruption in 2020 delayed deals. Now, buyers are scurrying to place capital. There is uncertainty about 2022, so activity is high right now.

The same dynamic holds true for strategic buyers. Those with an acquisition strategy and the cash to do deals were stymied in 2020 and are now aggressively seeking opportunities.

Potential Tax Changes

Capital gains tax increase coming? Big factor when timing the exit from your company.

Owners must weigh the pros and cons of growing the business for 2-3 more years versus selling now when the market is strong and tax treatment is manageable. Now is the time to seek advice from tax and transaction professionals.

Low Interest Rates

Buyers can increase borrowing capacity due to very low interest rates. This translates to premium prices for well-run, healthy businesses.

Owner Risk Mitigation

There are always risks associated with running a company. Some are within the control of the owner, others are not. What happened last year was a wake-up call for owners. Major disruption from an external source is a scary proposition, causing owners to re-think everything, from supply chain to customer retention to labor. Some owners have doubled down and plan to stay the course. Others are looking to convert their hard-earned equity into wealth through a transaction with a buyer, whether it be a 100% or partial sale. Taking on an investor/partner to reduce debt and to execute a growth strategy is a good way to de-risk and hold equity that can increase over time.

SUMMARY

Business owners are advised to think beyond their personal timetable when it comes to a transaction. The most successful transactions occur when a healthy business intersects with a strong market. 2021 is fast becoming an environment for record deal flow. Owners are advised to consider their options and determine if there is an opportunity to capitalize on today’s active deal environment.