How is the COVID-19 pandemic driving business sales? An article in The Economist discusses the conditions that have contributed to a coming wave of merger and acquisition deals.
Think about it. In January and February of 2020, there was a full slate of M&A activity on tap for the entire calendar year ahead. Then on March 17, the global pandemic was declared and the world went on virtual shutdown for 6-8 weeks.
I remember vividly working on a couple of deals during that time, and as we got to March, the number of potential buyers gradually slipped to zero and the sellers were faced with the idea of waiting for another year.
In the succeeding weeks of the shutdown, sellers had a season to reflect—they could see their shortcomings, but also their will was tested.
And as the company began to open up in June and July so did the M&A world. Private equity firms had a lot of cash sitting on the sidelines. What drives the activity post-shutdown?
- The pandemic has opened new problems for companies to solve. Many assume there will be another situation like it in the future. The current pandemic showed gaps to plug.
- Buyers realized they may need to acquire to fill those holes.
- Sellers realized they may not be equipped to plug theirs.
- The pandemic created winners and losers, and deals became a necessity for survival or growth.
Plan Wisely: Give Before the Sale
As with any of these deals or potential deals, they must be put together wisely or they will lead to remorse on both sides of the fence—buyer and seller.
From the seat I sit in, as a donor advised fund organization, I have a remind for those going down this road. As you structure your deals, don’t forget to address the charitable tax situation. To reduce and minimize tax, gifts of closely held stock must be made prior to the purchase agreement being signed.
Don’t let excess payment of tax be one more point of remorse.
And if you are a nonprofit leader reading this article, make sure you are asking your business owner donors what their plans are with regard to their company.
Photo by Roman Bürki on Unsplash
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Published January 29, 2021