Implications of a Democratic Sweep
Before the news of the Georgia Senate race, a rebound in mergers and acquisitions was already expected in 2021. With a Democratic sweep, the number of business owners looking to sell in 2021 is set to increase dramatically.
Many business owners will fear the unknown under a new Administration and are planning moves to exit their business in 2021 before changes could take effect with fiscal stimulus, climate legislation, public spending, regulatory policy, anti-trust policy, monetary policy and tax policy, all of which can create challenges (and opportunities) for business sales and acquisitions.
The reality may actually be more moderate. In the next two years, the Democratic party will have a 10-seat edge in the House and a 1-seat majority in the Senate (with the Vice President’s tie-breaking vote), which would qualify as the narrowest majority in history. With such a slim majority, it is harder to pass policies unilaterally, compounded by the Senate filibuster which effectively requires a 60-vote majority to pass most legislation. Using tax policy as an example, Senate Democrats might be able to persuade moderate Democrats to increase income tax rates on the wealthiest Americans, but perhaps not a tax hike for major corporations or changes to taxes on capital gains. Some tax legislation will be passed with a simple majority through budget reconciliation, but many of the President-Elect’s campaign promises will be difficult to pass with such a slim majority.
Even with tempered Democrat control, many business owners have survived the challenges of COVID and no longer want the risk of their wealth tied up in a business that could be going through another cycle in the coming years.
What else is on the horizon for 2021 M&A?
Top of mind is also the COVID-19 recovery, vaccine rollout and return to a new normal. With COVID vaccines on the way, M&A analysts are broadly positive looking into 2021. The pipeline is also solid for new deals coming to market.
M&A activity and value was depressed in 2020, but M&A activity increased 33% in volume and 140% in value in the third quarter of 2020, according to MergerMarket. Analysts expect 2021 to be a banner year for M&A activity, with low interest rates and dry powder stacking up needing to be deployed.
ClearRidge deals that paused in the summer are back on track for closing, in most instances with robust valuations that mitigate COVID losses. The pipeline for 2021 is strong.
On the ClearRidge website, you can find detail on seven key industries in our region, discussing data from 2020 and the outlook for 2021 – full article click here: www.clearridgecapital.com/mergers-acquisitions-rebound-after-covid-and-the-election-2021-clearridge-outlook/
Summary
The M&A market feels like an elastic band stretched tight. Low interest rates remain. Cash abounds to invest in acquisitions. The tide can turn quickly and drive a surge in activity.
Plan Today
In order to execute a business sale in 2021, it’s time to start work, with diligent planning and preparation critical to maximize the sale price of a company. Our team at ClearRidge stands ready to clear all pre-emptive due diligence, research, identify and screen prospective buyers, create all confidential marketing materials, data analysis and memoranda, confidentially market the business, lead negotiations on price and terms, and manage the buyer’s diligence teams.
