It should come as no surprise that the lingering effects of the COVID-19 pandemic, and the unprecedented levels of stress and uncertainty took its toll on business owners.  Recent surveys by BMO Capital Markets have suggested that approximately 50% of those businesses are owned by Baby Boomers, with over 70% that do not have a succession plan in place to pass the business along.  Couple that with the fact that the potential tax changes could have significant negative effects on the after-tax proceeds, has many Boomers wondering is now the time to sell?

Reason 1. Boomer Burn Out

After weathering the pandemic, the fatigue is real. Many Boomers do not want to deal with the stress of another recession or the length of a potential recovery. Timing is key here before the excess capital in the market dries up or potential tax changes go into effect. Either it’s sell now, or possibly run the business for another 5-7 years, if not longer.

Reason 2. Taxes

Under the Biden Administration’s proposed tax plan, business owners could see their capital gains taxes double from 20% to 39.6% which would materially impact after tax sale proceeds.

Qualified Business Income (“QBI”) deductions are also under fire from the new administration, which has proposed accelerating their removal which would disallow some business owners from deducting up to 20% of their business income for tax purposes.

Reason 3. $$$Money$$$

Private Equity is flush with cash from years of a bullish market and continual fundraising. Latest estimates have the dry capital available for the purchase of private companies at $1.5 trillion. PE certainly doesn’t make a rate or return for its investors by returning capital, so they need to put that money to work.

During the pandemic, many companies put their M&A aspirations on hold. In a post-COVID world, growing businesses with steady cash flows continue to attract strong valuations. Valuations will remain high as the market stays frothy and competitive. It is still a sellers’ market…. for now.

There is now a private equity option for just about every type of transaction imaginable. Want to retain control after a sale? Walk away entirely? Roll equity into the new combined business? There is likely a suitor to meet your specific desires.

If you or anyone you know is contemplating selling their company, or have any questions on the above, or want to discuss your specific situation, please feel free to reach out to us at 972-644-7111 or email smartin@whiterockassociates.com

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