This is a question we are asked almost daily. Fortunately, the answer is yes. You can sell your company this year and put yourself in the best position to receive favorable tax treatment under the current laws. A few factors make this possible. First, many active buyers with plenty of capital are looking for good deals. Second, interest rates are low, and lenders want to put some money to work. Third, the acquirers and lenders know that business owners want to sell this year, and they are willing to commit the resources necessary to close. Even with all these factors in place, however, you need one element to make sure your deal gets done before year-end: a well-run deal process that can keep everyone to a schedule. At this point in the year, this is critical.
How can I close by year-end?
The process to sell your company normally takes six to eight months, which means you’ll have to move quickly to get a deal done by the end of the year. How do you accomplish this? The best way is to find a quarterback, such as an investment banker, to direct the process. This individual will need to run a very tight process that keeps everyone on track to meet deadlines. In addition, they must have the resources to make sure the work is done well but efficiently. Initially, that means you’ll need to provide this person with all necessary materials right away. Once you’ve done that, the process will need to move forward according to strict deadlines. The investment banker (or other lead) and all parties should agree that the objective is to close this year. Last, you’ll need a strong deal attorney who can work through the documentation quickly. Inexperienced attorneys will cause delays, which might force the timeline to slip. In addition, any money you might save by hiring a less expensive, less experienced attorney could be lost to potentially higher taxes if rates increase in 2022.
What are the market conditions?
The abundance of capital that is available to invest in middle-market companies is well documented. Strategic buyers and private equity groups have amassed significant amounts of cash that is looking for a home. When the pandemic brought everything, including deal making, to a halt last year, these groups were forced to sit on the sidelines and wait for the M&A market to come back. When the market came back last summer, M&A activity surged, and it has not stopped. Acquirers are making up for lost time, and they are especially focused on companies that performed well during the pandemic, since such companies are relatively rare. The companies that have fared well throughout this period continue to receive strong valuations. The same is true for the companies that have bounced back recently. There is no question that a good market exists for companies that fit into either of these categories.
Supporting these buyers are the lenders. Banks and other lenders are actively seeking opportunities to put capital to work. With strong balance sheets or capital that needs to be invested, they are looking for good opportunities. Most are aggressively pursuing good companies, with strong lending packages and low interest rates. Understanding the need to close this year, these groups are focused on doing the work to make sure this happens.
You can still sell your company this year, but you need to move fast, as the window of opportunity is about to close. If you are willing to put the right team in place quickly, you should be able to close a transaction this year. It will take some work, but if tax rates increase, it will have been worth it. Even if you delay for a couple of months, you might still be able to sell—probably not to a third party, but possibly to an ESOP.
PCE has experience working with companies that want to complete a transaction in a tight time frame. If you are thinking of selling this year, please contact us right away. We can discuss your options and show you the potential path for success. If you wait a month or two and then decide to sell this year, we can still help you determine whether an ESOP is the right solution.