Deal activity is definitely up in 2021 as people get a better handle on how COVID affected businesses in their evaluations of new opportunities, says Beth Haas, a partner at Cyprium Partners.
Valuations are high and investment banks are bullish, based in part on the appetite of PE firms to do deals and the multiples at which those are expected to trade.
“Right now, I think it's really robust,” Haas says. “I think it's going to stay that way into the second half of the year.”
However, it may not be smooth sailing all the way through. She says factors such as commodity prices, inflation and the pressure around labor and wage rate could lead a strong ’21, which may see an additional activity boost as the threat of estate and capital gains tax changes put a ticking clock on deals, to ultimately taper off into ’22.
Clearly, though, it’s a seller's market, so business owners who have been considering an exit should look to capitalize on the favorable conditions. To do that, sellers need to put themselves in a strong position for a process.
“It's about being able to present a very, very clear data backstory of the last 15 months,” Haas says. “How did they manage through COVID. What has that done to the business and how will that be sustainable going forward?”
She says many companies, for instance, had to make significant cuts to their SG&A, and change the way they were doing some elements of business. When that’s the case, companies should be prepared to demonstrate that they are a leaner, better and more efficient organization because of those changes. That could do a lot of good for value as well as indicate future opportunities.
“So, for a seller, you want to be taking advantage of this market,” Haas says. “If you've been thinking it was time to put your business out there, it's a great time to do it. You need to make sure that you're prepared because despite the level of interest, there's going to be a lot of scrutiny and a lot of questions that you need to answer. Taking the time to get very organized and hiring the right advisers is going to be important to try to get a successful transaction done.”
Haas spoke on the Smart Business Dealmakers Podcast about the state of the M&A market, highlighting what she sees as good for sellers and what factors could dampen deal strength or activity. Catch the full interview by hitting play on the podcast below.
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