2021 may be a good time for business owners who have been considering selling or exiting their business to sell.
There is a record level of capital available (“dry-powder in private equity jargon”) to acquire your business. Our research and conversations with many senior private equity partners reveals that private equity fundraising has been so successful that 2021 will likely be a record year.
Through July of this year $550 billion in new funding has been raised for acquiring businesses. Private equity funding available to acquire businesses has been increasing consistently over the last several years. One summary report stated that the funds available for acquiring businesses reached a record level this year of US $3.1 trillion.
The consensus of the private equity executives with whom we spoke is that they are aggressively seeking and making acquisitions this year. This is good news for business owners who have been waiting to sell. Private equity firms have capital ready complete acquisitions and low interest rates will also help in getting acquisitions completed. When many private equity firms are seeking acquisitions, it is good news for sellers who will be able to get higher prices for their businesses. It is likely that the hunt for good companies to buy will continue to be very competitive. Private equity firms are actively seeking platform acquisitions and bolt-on or strategic acquisitions for their current portfolio of companies.
The price for businesses, typically a multiple of EBITDA, has also been increasing from 5.5 times at the end of 2018 to 6.9 times through Q2 2021. This means that now may be the time for business owners to maximize the value of their business and get a higher sale price for it.
Many business owners are concerned that an increase in the capital gains tax this year could have a negative impact on the proceeds of the sale of their business. There are proposals to double the capital gains taxes on proceeds of over $1 million. This will be a key deal structure issue to be negotiated with buyers. We also expect tax law uncertainty to stimulate more deal activity as PE firms and business owners look to lock in gains prior to any increases in capital gains taxes.
For the balance of 2021 we believe private equity firms will be aggressively pursuing acquisitions. However, good acquisition targets will not be easy to find and there will be strong competition for the best companies. Business owners now considering an exit, sale, or transition now have a good range of options including strategic buyers, family offices, and private equity firms.
We expect 2021 to be a very robust M&A market for privately held businesses. If you are considering selling your business, now may be the time to act. Don’t hesitate to reach out to us if you have questions.
