Now that Biden was named the President-elect, what does this mean for mergers and acquisitions under a Biden administration? The good news is that mergers and acquisitions activity is expected to increase regardless of the election results. Many experts predict that M&A activity will return to pre-pandemic levels in the next year, and that the market will be favorable for the next few years.
President Biden’s proposed tax plan raises the corporate tax rate from 21% to 28%, which would likely make M&A deals more expensive. Biden has also voiced support for an increase in capital gains taxes, which could impact M&A activity. The proposed plan would tax long-term capital gains and qualified dividends at the ordinary income tax rate of 39.6% on income over $1 million, and eliminates step-up in basis for capital gains taxation. Sellers may be anxious to complete deals prior to 2021 to dodge higher taxes and potentially lower valuations, and to avoid having increased capital gains taxes cut into profits from a deal.
The Biden plan also restores the top individual federal income tax rate from 37% to the pre-Trump rate of 39.6%. It also promotes tax provisions to penalize the exporting of jobs overseas and to incentivize investments in new infrastructure and green energy, transportation and manufacturing, and establishes a minimum tax on corporations with book profits of $100 million or more, structured as a 15% alternative minimum tax, to prevent them from paying no taxes. The plan also offers tax credits to small businesses for adopting workplace retirement savings plans and creates a Manufacturing Communities Tax Credit to reduce the tax liability of businesses that face workforce layoffs or a major government institution closure.
It is important to note that getting tax code changes enacted into law requires congressional leadership and the White House to work together to reach consensus. This can be challenging, and can also take a considerable amount of time, meaning that there may not be immediate tax implications for M&A. But you still may not want to wait until 2021 to sell your company. Here’s why.
Banking & Finance
An important factor for a healthy M&A market remains access to readily available debt financing. Biden supports the steps being taken by the Treasury Department and Federal Reserve to maintain a healthy banking system and stable access to capital. Therefore, the election results are not expected to have any significant impact on bank financing for M&A in the near future.
Additionally, private equity is sitting on billions of dollars in dry powder that was raised in recent years. Eventually, these funds will need to be deployed. The PE sector is poised to take advantage of special situations and distressed deal opportunities. There is nothing being proposed by Biden that will prevent this form of increasing M&A deal activity. However, changes to regulatory enforcement could affect M&A.
The Securities and Exchange Commission has been somewhat quiet when it comes to enforcement in the last few years. But regulations could be tighter under a Biden Administration. Democrats could attempt to pass laws such as the Stop Wall Street Looting Act, introduced in 2019. This bill would restrict private equity activities.
There has been speculation that a Biden presidency could soften the trade war with China, which may be good for investment, especially for industrial and manufacturing businesses that have been negatively affected by supply chain disruption caused by the trade war.
Biden has said he will take a harder stance on antitrust efforts, evaluating M&A activity in the healthcare sector. His plan states aggressive use of existing antitrust authority to keep market power from becoming overly concentrated, so that it does not drive down competition. This would reverse the ongoing trend towards M&A in both non-profit and for-profit healthcare.
At the same time, Biden claims that he will increase coverage, expand benefits, and increase funding for Medicaid and Medicare, which could be a plus for health care companies. Facilities such as clinics and other patient-facing services could benefit from more government spending on health care, making them more attractive targets for buyers.
The past has also indicated that policy change can drive innovation in the health care sector. For example, the Affordable Care Act created incentives for health care providers to digitize medical records, which in turn created new businesses that were needed to manage those records.
Biden has outlined a plan for a "Clean Energy Revolution." This plan could benefit companies in the clean energy space including utilities that harness wind and sun power as well as electric, natural gas, and renewable energy players and could drive M&A activity.
The House and Senate
Another important consideration is that presidents do not have unilateral authority to change or implement policies without support from the other branches of government. 33 Senate seats were on the ballot in this election.
Ready to Sell?
If you are ready to sell your company, please set up a call to talk to one of our M&A experts so that we can work together to form a plan that makes the most out of your life’s work and gets you every last bit of value that you deserve
Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@BenchmarkIntl.com
Europe: Michael Lawrie at +44 (0) 161 359 4400 / Enquiries@BenchmarkIntl.com
Africa: Anthony McCardle at +27 21 300 2055 / McCardle@BenchmarkIntl.com
ABOUT BENCHMARK INTERNATIONAL
Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $6B across various industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.