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Tax Reform and 2018 M&A Activity

By Generational Equity

Tax Reform

Based on the input of several M&A experts, the general consensus is that the recently passed tax reform legislation will add fuel to the current strong seller’s market in 2018. This is how The Wall Street Journal put it in its December 21st issue:

The starting gun for the latest deal-making wave went off a couple of months ago when the contours of the tax bill started to come into focus. Now with the plan nearly done, mergers and acquisitions should accelerate next year.

One big positive for prospective sellers is that the lower 21% corporate tax rate will reduce the tax bill to companies that sell off business units. Another is the lower [tax] rate will give companies more cash to spend, especially at a time when share buybacks are less attractive because of high stock prices.

Finally, [and] companies with overseas cash will be able to bring it home.

We concur with this analysis. The dramatically reduced corporate tax rate, cut from 35% to 21%, will throw more cash to the bottom line and give corporate buyers added incentive to use the capital on a variety of business expansion strategies, especially M&A activity.

As The Wall Street Journal described it:

The tax bill was a gift to business. For some it will be a wedding gift.

Merger and Acquisition magazine recently interviewed Nixon Peabody partner Richard Langan Jr. who came to a similar conclusion:

I think there is a lot of enthusiasm in the middle market. There was a lot of uncertainty this year in M&A due to political uncertainty in Washington.

Now that the uncertainty relating to tax reform has been lifted, it is reasonable to assume that buyers who were on the sidelines during the latter half of 2017 will now more aggressively pursue their M&A plans in 2018.

Mr. Langan added:

There will be great investments by some companies including on infrastructure. It will cause them to make some M&A decisions particularly on the buyside. I think strategics, particularly in the middle market, will benefit from the reduction in corporate taxes.

This may also cause some family funds to consider M&A as opposed to interfamily transfers.

Will Tax Reform Spur Your Exit Strategy?

Last year was record year for Generational Equity in terms of deal closings. Given the trillions of dollars that will be available for investing purposes, combined with an expanding economy and interest rates still at historically low levels, we believe that the tax reform will simply add fuel to the active seller’s market we have been in the last few years.

Because of these reasons, we are strongly suggesting to business owners who attend our exit planning conferences that they prudently examine their options in the marketplace now rather than waiting.

History is littered with deals that were passed up in 2000 and 2008, right before two recessions hampered M&A activity. Since all seller’s markets eventually end, now is the time to act, as it takes 9-14 months to close most deals with optimal buyers.

If you are interested in learning how you can take advantage of the current seller’s market and the aggressiveness of today’s buyers, please contact us at 972-232-1121 or send us your information via our contact page and we will be in touch.

It really behooves every owner of a business today to investigate current M&A activity and the opportunities it offers.

By Carl Doerksen, Director of Corporate Development at Generational Equity.

© 2021 Generational Equity, LLC. All Rights Reserved.

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The professionals at Generational Equity then helped develop a roadmap for enhancing the value of the firm and an evaluation report. This was completed by June 14, 2021. We then developed the Confidential Information Memorandum and put Taylor Studios, Inc. on the market by July.
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Betty L. Brennan, President, Taylor Studios
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Eric Erlandson, Owner, Action Fastenings, Inc.
T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.
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Tom Currier, Former President & CEO, Rackmount Solutions
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Larry Moore, Owner, A Company Portable Restrooms
I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.
Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.
Pete L.
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Bil MacLeslie, CEO, ipHouse
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Salvo Stoch, Founder and CEO of Sleeping Partners
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Terry D. Wickman, President, Keytroller
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Terry D. Wickman, President, Keytroller
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Jay Dinnison, Owner of Sharpe Mixers
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Robert Evans, President and CEO of Mealtracker Dietary Software
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Bil MacLeslie, CEO, ipHouse
We were represented by Michael Goss with Generational. The due diligence was grueling and exhausting, but Michael propped us up and kept us motivated throughout the process. Debi and I continued to ask each other how we could possibly make it through this process without the assistance of Michael. Michael's professionalism and knowledge is absolutely amazing, and we are so blessed to have had him by our side as we made our future dreams come true.
Bob and Debi Lee, Owners of BL Technology, Inc and BL Tl Services, LLC
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Caroline Connelly, CEO, OptoTest
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We had the pleasure of working with Mr. Ahmad Behjati Managing Director, M&A, for Generational Equity during our acquisition of Papa's Dodge in late 2021. Generational Equity and Mr. Behjati represented and marketed Papa’s Dodge. As our primary contact, Mr. Behjati was professional in every facet of this acquisition process, conveying valuable advice most times and assisting us in every step of the process.
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Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
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Jay Dinnison, Owner of Sharpe Mixers
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JoAnn Ellis, Owner of Fondren 5 Star Kennels
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.
Larry Moore, Owner, A Company Portable Restrooms
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Ralph Noblin, President of Noblin & Associates
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Andy Graham, Vice President, Modern Heating & Plumbing
I decided to attend the conference and hopefully receive some guidance on how to structure an exit plan of my business. Upon arriving at the conference, I was so impressed with the presentation given by Generational Equity that I set a future appointment that week to discuss the possibility of selling my business with their Senior Managing Director David Robinson.
JoAnn Ellis, Owner of Fondren 5 Star Kennels
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I wanted to take this opportunity to thank you for all that you have done for us. Not only did you take care of all the aspects of the sale but took extra care to make sure we knew what it looked like every step of the way. I will definitely recommend your company to anyone that is in a position to or looking to exit their business.
Shane and Johanna Kline, Owners of Vision Upfitters
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Bil MacLeslie, CEO, ipHouse
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Robert Evans, President and CEO of Mealtracker Dietary Software