The first half of 2021 saw M&A activity rebound quickly. Deals previously put on hold were resurrected and buyers aggressively sought new deals. Sellers seemed to rush to market to take advantage of the market conditions and perhaps get ahead of the proposed tax increases. In the first quarter alone, more than (8,700) deals worth approximately $918 billion successfully closed.
With the global vaccine rollout, increased consumer confidence, and capital availability remaining plentiful, experts predict the M&A market will stay strong throughout 2021 with technology, healthcare, financial services, and home services acquisitions continuing to see the highest activity.
While M&A activity is forecasted to remain at an all-time high, sellers should expect the road to a successful transaction to be arduous and extensive as buyers vigorously attempt to mitigate their risks around the uncertainty of future performance with a heightened focus on the due diligence process, additional proposed reps and warranties, and added layers of structure to the overall purchase price.
Increased Due Diligence
Buyers are conducting diligence that goes beyond the already expansive “normal course.” Sellers should expect buyers to conduct a quality of earnings analysis focused on the financial performance of the Company, a deeper dive into supply chains, an assessment of business insurance coverage, an examination of employee retention, and a scrutiny of past, present, and potential legal concerns.
Greater Legal Protections
Buyers may seek additional reps and warranties while sellers may expand their disclosures around exposure to pandemic-related topics such as the Paycheck Protection Program (PPP) and forgiveness of same, tax matters related to the government stimulus programs, labor force interruptions, sustainability of customer relationships, and vendor and supplier agreements.
Additional Purchase Price Structure
Buyers may incorporate sizeable earnouts based on future performance and additional holdbacks for potential, unforeseen events which may arise post-closing. Buyers will continue to look for ways to shield their investments from events such as last year’s pandemic.
Conclusion
If you are thinking about selling your business, the M&A market is booming!
Consult with your M&A deal team TODAY to make sure you are prepared tomorrow.