Horizons Spring/Summer 2021

position capital in hopes of gaining scale and accelerating growth.

sellers to negotiate transactions without any COVID-19 adjustments. Additionally, these 12-month operating results demonstrate to buyers if a target is built strong enough to live in this new world. Tax Law Changes – Death & Higher Taxes Democrats control the White House, Senate, and the House of Representatives. This group will have at least two years of unilateral decision making (assuming appointees vote on their current party lines). Changes to the tax laws remain in the smoke signals, but President Biden’s policies point to nearly a double increase in rates on material long-term capital gains (20% - 39.6%, for those with AGI exceeding $1 million), the elimination of the qualified income deduction for partnerships and S corporations, and an increase in the corporate rate from 21.0% - 28.0% . Radical changes to the aforementioned tax laws could result in unintended consequences furthering sellers’ motivation to transact sooner than later. Cheap Debt – Tinder on the Powder It is expected that the majority of the 2021 buyouts will be sponsored by private equity funds structuring the transactions with significant amounts of debt. Recently, debt has been rather cheap fueling future buyouts. In response to the pandemic, during March 2020, the Federal

Baby Boomers – Looking to the Sunset There is a popular expression sell-side advisers whisper to their clients: “you can always be early, but you can’t be late.” As more than 12 million baby boomer business owners approach retirement age and look to monetize their closely- held businesses, new motivation from the pandemic drives sellers to reevaluate that ‘perfect’ moment to transact. Owners were startled and began to focus on value preservation, possibly even at the risk of sacrificing transactional up-side. Given the number of sellers in tandem with the fear of another economic crushing event, volume and motivation will be high from these baby boomers. Buyers and sellers who transacted during Q2’20 – Q1’21 entangled over profit and loss (“PnL”) COVID-19 adjustments. Regardless of their validity, this topic remained a sour topic between parties as buyers rarely wanted to give sellers the benefit for these adjustments, leaving sellers feeling short changed, possibly even jeopardizing the deal. As soon as Q2’21, sellers will have ‘clean’ twelve month operating results absent any COVID PnL impact, allowing buyers and Trailing Twelve Months' Financial Results – COVID Results Are Negative

M&A Outlook: Comes in Like a Lamb, Out Like a Lion

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