Comparing year-over-year in the state, deal value jumped by 201.5 percent in the first quarter.
This is in large part due to a wave of healthcare mergers in the Dallas-Fort Worth area. Surveys indicate that this trend will persist in the second half of the year, with 69 percent of healthcare leaders indicating that they will be working on deals. Nearly 70 percent say their deal activity will increase in the next three years.
Areas to watch include new technology and solutions in the telemedicine arena. Companies that are able to streamline services such as video visits, at-home services and mobile-care platforms will continue to be attractive to healthcare companies that want to boost their telehealth offerings.
In addition to telehealth, experts foresee an uptick in M&A activity in the logistics, cryptocurrency and education technology sectors.
But what exactly is driving this uptick in middle-market M&A? Experts have pinpointed several factors.
BIDEN TAX RATE PROPOSAL
For starters, companies are keeping a close eye on President Biden’s plan to nearly double the tax rate on long-term capital gains, which affects anyone making more than $1 million per year. Market experts say this will lead to a burst of M&A activity in the second half of the year, with everyone trying to avoid a big tax bill.
A Citizens survey of 700 leaders at Middle Market and private equity firms affirmed this mind-set, with responders saying that companies will rely on M&A for growth in 2021, with more sellers open to deals in the third and fourth quarters.
Advisors indicate that pent-up demand as a result of the COVID-19 pandemic and economic shutdown in 2020 is a big factor in the M&A upswing.
Companies that did well throughout 2020 are sitting on money that they are itching to invest. Alternately, companies that did not do as well in 2020 are starting to rebound and now may be attractive as acquisitions.
Also, many people are emerging from the pandemic with a new outlook on life. They are reconsidering how they want to spend their time, and for some that means leaving the rat race altogether. Experts predict an uptick in deals with leaders who are looking to exit their business as a result.
BABY BOOMER SALES
According to a Pew Research report, baby boomers are leaving the workforce at an unprecedented pace. In fact, 28.6 million boomers said they were retired as of third quarter 2020 — 3.2 million more than in 2019.
This retirement exodus is creating a baby boomer bubble in the lower middle market. First-generation founders of family-owned, private businesses are poised to make deals to either transition their companies into the next generation or sell them off entirely. Boomers make up 41 percent of small businesses, so this is a big M&A wave.
Adding to this wave are the 2.7 million people ages 55 or older who are considering early retirement because of the pandemic, many of whom have accumulated wealth and may be looking to cash in on their companies, too.
LOW INTEREST RATES
On the other hand, there are many boomer businesses that have used record low interest rates to expand.
Data shows that more business owners age 45 and up entered the pandemic with a financial buffer. And a survey by BizBuySell, an online business-for-sale marketplace, shows that 30 percent of buyers are baby boomers.
In addition to low interest rates, experts say PPP loans, stimulus checks, readily available financing, and government infrastructure spending have all helped spur acquisitions for those who qualify for the aid.
WHY HIRE DBG ADVISORS
According to a recent Citizens survey, sellers are seeking the help of an M&A Advisor such as DBG Advisors at a much higher rate in 2021.
The No. 1 reason to engage a Business Broker is to find potential offers, followed by seeking help to structure financing and get the best prices.
Top Reasons to Buy in 2021
- Increase revenue and growth (61%)
- Improve operational efficiency (41%)
Top Reasons to Sell in 2021
- Strategic growth opportunities (67%)
- Take advantage of current valuations (44%)
Whether you are buying or selling your middle-market company in 2021, DBG Advisors is here to help. We are known in the Dallas area as a highly respected M&A advisory firm, and we provide skilled, highly personalized advice to our clients that is focused on what is best for their unique businesses.