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Post-Election M&A Activity in 2021

By Generational Equity

09/08/2020

Recently, CLA, a tax advisory, accounting, and wealth management firm published an interesting article on the potential impact of Vice President Biden’s suggested tax changes on the economic landscape of this country. Since we have no idea who will win the Presidential election in November, and since we take no position on the election, all we can say is that if V.P. Biden wins, based on proposed tax law changes, 2021 will potentially see an explosion in business owners seeking to exit.

Although the details are far from clear, what we can see is that many of the changes Biden has proposed will raise a variety of tax rates, including capital gains taxes, back to historical norms. This means that taxes paid on M&A transactions will increase (assuming Biden wins and controls both the House and the Senate). 

Not to get mired in the details that are still under speculation, the assumption by CLA (and many others) is that because of these tax changes:

“The potential change in tax landscape could lead to an increase in M&A activity in the coming year. The prospect of a tax increase, however, might catalyze M&A activity as business owners seek to exit before corporate and individual rates go up. For owners of pass-through entities, the proposal to increase the capital gains rate to 39.6% on income over $1 million will be a major factor in considering whether or when to sell their business”.

So the reality is that even if V.P. Biden wins in November (and retains control of the House and gains control of the Senate), these tax changes will most likely not take effect until tax year 2022. This means that loads of private business owners could be dusting off their exit plans very, very quickly after November 3rd of 2020.

Why wait? 

The reality is exit planning is a process, not an event. You have to start early to exit in a timely manner for your benefit and if the assumptions above are true, you need to start your exit journey now.

Assuming it takes 9-14 months to culminate an optimal transaction, your starting point for an exit that generates the most profit for you, is within the next few months. This is a reality no matter where you stand on the political spectrum. 

The good news is Generational, and its team of exit planning professionals is here to guide you to a successful exit AND the retention of your wealth post exit. Here are some links to help you learn how:

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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