A Look at M&A Trends for Businesses and LPs

Events from this past year continue to influence the behaviors of people and impact the ways we do business. As businesses approach the one-year mark of operating in a pandemic and the vaccine rollout progresses, optimism continues to appear high, but stimulus plans and a new administration bring some uncertainty to the future of the M&A market.

Panelists on Weaver’s recent webinar, “The State of M&A: Considerations for Businesses and LPs,” provided thoughtful commentary on the potential opportunities and challenges and concerns facing buyers and sellers in the near future. Here are some key highlights from the conversation:

Deal Structure

• The recent focus on buyer protection will likely continue through the use of earn outs and escrows. With heightened concern surrounding liabilities, and due diligence likely being mostly remote in the near term, the recent uptick in reps and warranties insurance usage in the middle market, which peaked in Q2 2020, is expected to continue.

  Special Purpose Acquisition Companies (SPACs)

  One of the hottest trends on Wall Street in 2020 doesn’t appear to be slowing down.

  “I see it as a quick way to raise capital versus the reverse mergers that we see so often merging into a public shell,” stated Sean Muller, National Practice Leader, Tax Services.

  “I think it’s really exciting for a lot of investors, especially young folks who are more keen to take on risk,” remarked Jennifer Krieger, Director, Financial Advisory Services.

  Whether SPACs become commonly used as a way to provide more private-equity-like investing to the public or are merely a short-term fad is speculative, but the next 12 months may help provide the answer.

Tax Implications

• *72% of attendees polled think there will be new tax legislation in 2021.

  The CARES Act, the Consolidated Appropriations Act, and the new Biden administration have buyers and sellers paying more attention.

  Corporate tax increases are probably on the horizon, which could potentially result in sellers looking for a higher purchase price.

  Alternatively, should capital gains and corporate taxes increase, an employee stock ownership plan (ESOP) can offer potential tax advantages.

  “There is a lot of owner fatigue and ESOPs can be an easy way to cash out and diversify a retirement plan,” advised Jennifer Krieger, Director, Financial Advisory Services.

The Future of Due Diligence?

• The adoption and use of virtual applications, such as Zoom and Microsoft Teams, create some efficiencies and allow due diligence teams to be more prudent. That said, we see onsite is still preferred for the final stages of the due diligence process, so a hybrid-approach could be here to stay with more cost-efficient virtual methods being used in the beginning.  

As you consider any deal activity either on the buy or sell side, we welcome you to contact Weaver for an understanding of the M&A process. We are available to assist you with each phase of the transaction.

Speakers from “The State of M&A: Considerations for Businesses and LPs” webinar included:

• Jennifer Krieger, Director, Financial Advisory Services
• Sean Muller, National Strategy Leader, Tax
• Brian Reed, Partner, Financial Advisory Services 
• Moderated by Weaver’s Becky Reeder, Partner, Alternative Investments  

© 2021