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Lingate 2018 Q1 M&A Update - Sellers heading for the door instead of the lake

Lingate 2018 Q1 M&A Update - Sellers heading for the door instead of the lake

After putting off the sale of their businesses for several years, owners in their late 60’s and 70’s are now heading to market, further boosting the M&A market in the first quarter.  With a growing economy, strong business performance, and reduced tax rates, owners of lower middle-market companies are heading for the door instead of the lake this summer.  Even with more businesses going to market, pricing still remains at the top of the market for growing, profitable companies.  Companies going to market before the 4th of July can expect to attract a lot of interest from private equity groups, complementary strategic buyers and well-capitalized individuals, and still take advantage of the new reduced tax rates by the end of the year.

C-Corporations are now receiving an added boost

As much as owners of “C-Corps” would like a stock sale, buyers (and their advisors) continue to push an asset sale to achieve better asset depreciation and reduce potential future liabilities.  Prior to 2018, an asset sale of a C-Corp likely created a costly “double taxation” situation for the Seller at the corporate and personal level.  However, for long-term business owners with a low tax basis, the new reduced capital gains rates may significantly soften the Seller’s tax expense if a potential buyer insists on an asset sale.  Other beneficial tax structures may also be available.  If you are considering a sale in the next two years, you might want to visit with your tax accountant to model your “after-tax” proceeds in this new tax environment.  Lingate can also help you estimate the likely sale price.

Good News/Bad News for companies seeking an acquisition

With a lot more companies in the market in 2018, that’s good news for companies looking to execute on an acquisition strategy. The bad news is that there are more companies and individuals with the same strategy, creating a lot more competition.  To give yourself an edge, be prepared to move quickly for that special company that hits all of your search criteria.  Contact your banker, outside accountant and attorney to model your ideal transaction and obtain preliminary approval for your financing.  In this very hot market, speed can be the important differentiator to get the deal done.

If you are considering an internal or external transition of your company, we would enjoy visiting with you to learn about your company and your plans for the future.  Lingate is able to tailor a service plan, resources and fee structure to meet your needs and accomplish your goals. 

Greg Loeschke