2021 is shaping up as a year to focus on M&A as global economies surge in response to easing pandemic conditions in an environment where there is a bountiful supply of cash.
As I wrote earlier, there are four trends driving M&A in 2021: (1) embattled governments, (2) a push for national self-sufficiency, (3) stranded segments of society, and (4) a rise in food insecurity.
Anecdotally, I am hearing increasing numbers of business owners think out loud that this year might possibly be the year to sell.
Private equity is sitting on a stockpile of more than $1.5 trillion in cash. Commentators say that this is the highest cash amount ever for this class of investors and more than double the value from five years ago. Private equity is looking for opportunities to invest.
At the same time, business owners increasingly expect that taxes will rise in the future. That expectation drives an imperative to sell while taxes remain and relatively low currently levels. The expectation is justified, as some politicians have proposed increasing income taxes and implementing a "wealth tax" that would tax multi-millionaires on the values of their assets in excess of $50 million.
The confluence of these two trends is driving business owners to look for an exits in the hopes of retaining a greater portion of purchase price after taxes.
"The post-Covid-19 business trends, coupled with changes in U.S. political leadership may make 2021 a prime year for a small business to test the waters for a sale."