There’s a lot of potential for action in today’s M&A market, according to David Woodburn, a shareholder at Roetzel & Andress. For instance, low interest rates and uncertainty over estate and income taxes create an environment in which there’s potential for a tremendous amount of action from people looking to transition their closely held business interests to third parties or to family members.
“When you have low interest rates you have a lot of planning options become available to you,” Woodburn says. “When you’ve got down revenues, for a lot of these closely held businesses, all of the sudden that’s leading to depressed valuation reports. And when you’ve got the depressed valuation reports, that’s the opportune time to be gifting it out and leveraging your estate and gift tax dollars.”
The recent disruption brought on by the pandemic is happening at a time when, for many owners, the Great Recession is still in the rearview mirror. That has some contemplating a sale rather than working to rebuild their businesses through another challenging time.
“For those who have weathered the storm for all these years, now I think they’ve had enough and they’re saying it’s time to move out,” he says.
But it’s not just about challenged companies. This economic environment has created a great buying opportunity.
“If you’re a third party and you’re looking to invest in a new business or expand your own, it’s a great time to be trying to purchase somebody else that has had enough,” Woodburn says. “And networking and finding those opportunities is really crucial right now.”
While it’s certainly an M&A market with challenges that are affecting deal flow, Woodburn says he’s not seeing deals fail.
“What you’re seeing is people taking their time, and many people are a little more willing to work with each other. Sellers and buyers are a little more cooperative than I think I ever seen it. If you’re a motivated seller, the last thing you want is for the buyer to fail because they’re having some issues with the bank, or a lender giving them grief because they had a PPP loan or whatever it might be. Now you’re seeing those parties all working together to try and make the deal happen.
Woodburn offered his sense of the deal market, what companies can do to prepare for crises in the future, and more when he spoke on the Smart Business Dealmakers Podcast.
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