Deal-making in the wake of the pandemic: examining the issues concerning buyers and sellers today

While the COVID-19 pandemic had an enormous impact on the deal-making environment, as economies continue to move into a recovery phase, deal-making has bounced back in a significant way. At a recent Baker Tilly webinar, Mike Milani, principal, Baker Tilly Capital, LLC, noted that “in the pandemic deal-making environment, what you're seeing is motivated buyers and motivated sellers. Many people have adapted a post-COVID growth outlook where many businesses for sale right now have been in recovery or are fully recovered.”

Third-quarter 2021 merger and acquisition (M&A) transactions broke several records, Milani noted, including global M&A reaching an all-time peak of $1.52 trillion. In the U.S., M&A activity was up 32% in Q3 for a total of $581 billion.

Over the last five-plus years, M&A has generally been steady – both in terms of the number of transactions and the number of dollars – as depicted in the charts below. Following some ugly pandemic-driven numbers in Q2 and Q3 of 2020, transaction activity began to bounce back in Q4 of last year, and the numbers in Q2 and Q3 of this year are in line with typical years, Milani said. Additionally, this year’s Q4 figures are projected to be quite robust, as well.

“As I look into my little crystal ball,” Milani said, “my guess is that the fourth quarter is going to be much stronger than the first three quarters.”

“You have seen a number of companies come to market in 2021 that were thinking of going to market in 2020 but decided not to put themselves up for sale, just to get past the pandemic and some of the issues that people saw during that recovery period,” Milani said.

Factors behind the continued resurgence of M&A activity include:

• Post-COVID outlook: Many businesses are recovering from the impact of COVID-19, and buyers/sellers are beginning to feel optimistic about the future
• Possible capital and estate tax changes: Capital gains taxes might increase, and valuations continue to be quite high, both for public and private companies