Three The impact of macroeconomic conditions on M&A mergers and acquisitions (M&A) activity – supply, demand, and the availability of capital. This year has offered its own unique set of circumstances that have changed the sentiment of sellers, buyers, and lenders alike as they adjust to current market conditions.

There is no shortage of supply when it comes macroeconomic to business owners who are ready to sell. Many of today’s business owners are part of the boomer generation. And have started to take a serious look at their succession plans. As a result of the aging population of current business owners, it is anticipated that over the next 10 years. 70% of U.S.-based businesses will transition to new ownership. For some, the motivation to sell is to create a liquidity event to fund their retirement. Others are looking to free up their time for family, travel, or perusing their hobbies. This generational shift of business owners is expected to create a high supply of businesses for sale over the next few years.

The COVID-19 pandemic and pending capital gains tax increase have also affected the way business owners view selling.  The effects of COVID-19 impacted seller psychology. As it reminded owners of the macroeconomic 2008 financial crisis and the hardships they experienced. While operating under a massive economic contraction. As the economy begins to recover, sellers are taking this opportunity to exit before another economic downturn negatively impacts their business.  The potential tax increase under the Biden administration has also increased sellers’ desire to sell. President-elect Biden has been clear on his stance when it comes to taxes and has plans to raise capital gains taxes to almost double their current rate (from ~24% to ~40%), once in office. Many business owners, who were considering a possible sale, are now feeling the pressure to exit before these tax increases go into effect.

Have had a greater impact on the M&A activity of strategic buyers. Compared to macroeconomic financial buyers due to the strain of operating under a global pandemic and increased restrictions. Many strategic buyers are not in a position to spend financial or human capital on acquisitions at this time. Companies who have the capital to invest, have narrowed their focus on 1) acquiring distressed companies for a lower valuation, and/or 2) purchasing higher-performing assets to de-risk their financial profile, and/or 3) diversifying their revenue streams through acquisitions outside of their typical target criteria. Financial buyers, on the other hand, have more cash than ever to fund transactions (as mentioned in our previous article. Valuations during Record-High Cash Levels) and are by investors to deploy their capital to acquire companies.