26 Feb National Report: M&A Advisors Predict More M&A Activity with Looming Taxes | PPP Delays Closings
February 8, 2021 – Austin, Texas — Merger and acquisition advisors and business brokers are optimistic that the M&A market will return to pre-pandemic conditions in 2021. In the lower middle market, 17% of advisors believe we are “already there.” However, 22% predict market conditions won’t recover until 2022 or later. Main Street brokers are slightly less positive. Only 10% believe conditions have already recovered, while 33% believe we won’t have a full turnaround until 2022 or later according to the Q4 2020 Market Pulse Report published by the International Business Brokers Association (IBBA) and M&A Source.
“One of the chief concerns right now is that the Biden administration will follow through on campaign plans and increase capital gains taxes. The Biden plan would effectively double the capital gains rate for businesses valued at more than a million dollars,” said Scott Bushkie, president of Cornerstone Business Services. “We’re expecting a bump in activity as sellers go to market now in hopes of avoiding those increases.”
For businesses with PPP loans in the Main Street market, advisors say 41% have had closing delays due to uncertainty around their PPP status, 30% are having trouble getting to close due to risk allocation issues, and 10% are up against lenders who won’t fund a transaction with outstanding PPP loans.
In the lower middle market, where roughly 40% of businesses have been affected, the outcomes are similar: 42% have closing delays, 31% face risk allocation issues, and 8% can’t get lender support due to PPP loans.
“Deal volume was down in 2020, as one would expect in a business downturn. But unlike other recessions, valuation multiples stayed strong, at least for businesses that were able to weather the impact of COVID-19,” said Bob Dale of the Austin Dale Group, an M&A firm based in Austin. “It comes down to supply and demand. The spread of quality sellers and buyers widened significantly in 2020, so there was plenty of competition for attractive companies. Businesses that were relatively pandemic proof, such as software companies and IT managed service providers, got good deal structures and multiples.”
The Market Pulse report also found that seller-market sentiment in the lower middle market at the end of 2020 was increasing much more quickly than in smaller business sectors which are still buyers’ markets.
About the Market Pulse Report
The Market Pulse Report compares conditions for businesses being sold on Main Street (values up to $2MM) to those being sold on the Lower Middle Market (values of $2MM-$50MM). The Q4 2020 survey was conducted January 1-17, 2020 and completed by 363 business brokers and M&A advisors. Respondents completed 256 transactions this quarter.
About International Business Brokers Association (IBBA) and the M&A Source
Founded in 1983, IBBA is the largest non-profit association specifically formed to meet the needs of people and firms engaged in various aspects of business brokerage and mergers and acquisitions. The IBBA is a trade association of business brokers providing education, conferences, professional designations and networking opportunities. For more information about IBBA, visit the website at www.ibba.org or follow the IBBA on Facebook, Twitter and LinkedIn.
Founded in 1991, the M&A Source promotes professional development of merger and acquisition professionals so that they may better serve their clients’ needs and maximize public awareness of professional intermediary services available for middle market merger and acquisition transactions. For more information about the M&A Source visit www.masource.org, or follow the M&A Source on Facebook, LinkedIn and Twitter.
Bob Dale, Partner
Austin Dale Group
Laura Wright, Director of Operations