2021 was a strong market for business owners looking to sell their companies. The market remains ideal and will do so as we move into the first quarter of 2022. As we are in the middle of this year, there is no better time to consider putting your business on the market.
M&A activity was moving at a record pace in 2021, thanks to economic recovery, a strong stock market, low-interest rates, rapid digitalization, more SPACs, confident boardrooms, and available debt. The U.S. had reported more than $2 trillion in M&A activity in 2021, with the year on pace to be the most active in history. Not to mention that the second quarter of 2021 was the third straight, with total global M&A value surpassing $1 trillion. That is the first time this has ever happened in three consecutive quarters. So even in the middle of the year, when things typically slow down, we are still seeing a great deal of investment, and the market is still flooded with capital.
While the COVID-19 pandemic caused deal activity to slow down in 2020, it also forced sellers and buyers to adapt, which turned out to be a good thing. Everything has become more digitized during the pandemic, including virtual due diligence and closing deals faster and more efficiently via remote arrangements. It’s hard to believe that 2022 will be the third year of the pandemic, but M&A momentum is expected to move forward at full speed, barring any unforeseen circumstances, such as a resurge in COVID due to new variants.
According to Bloomberg, in 2021 there were 506 agreements allowing for remote closings. That number is up greatly from 279 agreements in 2020 and 200 in 2019. This is a sign that virtual deals are here to stay.
Private equity had shattered records in 2021. From what had been reported so far, global private equity parties have been involved in $1.7 trillion in M&A on both the buy and sell sides. That’s the highest annually for any year on record. Private equity had already accumulated a record $3.3 trillion in unspent capital. With private equity sitting on so much dry powder, there is plenty to be deployed in the near future. In fact, new PE funds were launched this year, collectively looking to raise a total of more than $500 billion in capital.
While you haven’t missed out on this hot market yet, you need to keep in mind that significant market changes are expected in the near future. One of the fundamental changes is the rising interest rates. Interest rates have already taken one hike this year, and buyers are trying to close and fund deals quickly in 2022 before the rest of the expected hikes to occur.
Many sellers are moving quickly to get their companies on the market this year, not just because it is a seller’s market. Business owners in the U.S. are trying to sell before potential corporate and capital gains tax increases could be enacted in 2022 by the Biden administration. The proposed plan raises the corporate tax rate from 21% to 28%, which would likely make M&A deals more expensive. The Biden plan also aims to restore the top individual federal income tax rate from 37% to 39.6% on those earning more than $400,000 per year.
The bottom line is that 2021 has been a great time to sell, and the market has remained strong until 2022. But no one knows how quickly things will start to slow down. So while the window of opportunity has not closed yet, you don’t want to wait until it does, and you want to make sure to work with the right deal team that has the resources to complete a deal efficiently before any more market changes happen.
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 $8.25B across various industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 14 offices across the world, have assisted thousands of owners with achieving their personal objectives and ensuring the continued growth of their businesses.