11 Feb National Report: Business Brokers Predict More M&A Activity with Looming Taxes | PPP Delays Closings
February 8, 2021 – Melville, NY — 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’re “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 Market-Pulse-Q4-2020 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.
“Volume was down in 2020 just as with other times of business downturns. But unlike during times of recessions, multiples actually stayed strong, at least for businesses that were able to weather the impact of COVID-19,” said Kyle Griffith, CBI, CM&AP Managing Partner of The NYBB Group. “It comes down to supply and demand. The spread of quality sellers and buyers widened significantly in 2020, so there was competition at the table. Businesses that were relatively pandemic proof got good structures and multiples.”
“Although there is an ample supply of willing buyers, the due diligence process has included more scrutiny as a result of the Pandemic”, said Anthony Citrolo, CPA, CEPA, Managing Partner of The NYBB Group. “Buyers are carefully assessing the impact of COVID on both the financial results of companies as well as their supply chain. That being said demand is very strong for profitable, well-run and scalable companies.”
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 smallest business sectors which remain stronger buyer-market sentiment.
About the Market Pulse Report\
The Market Pulse Report compares conditions for businesses being sold on Main Street (values of $0-$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.
About The NYBB Group
The NYBB Group has been “leading the way” for entrepreneurs and small businesses since its founding in 2003. The firm provides mergers and acquisitions, business advisory, exit planning, and commercial real estate services to clients through the U.S.
As a company with a solid, proven track record of success that is actively managed by Certified Mergers & Acquisitions Advisors and Certified Business Intermediaries, The NYBB Group has established itself as one of the most trusted and respected names in the business buy/sell marketplace. For more information about The NYBB Group, visit the website www.nybbinc.com
Kyle Griffith, CBI, CM&AP
Managing Partner – The NYBB Group
IBBA / M&A Source – Market Pulse Committee / Board Member
Public Relations, The NYBB Group, Inc.