The current landscape for mergers and acquisitions (M&A) is marked by contrasting forces. High interest rates and the rising cost of assets are slowing deal activities, but private equity groups are flush with capital. Additionally, the uncertainty of an election year often causes hesitation among business decision-makers, further complicating the M&A environment.
Despite these challenges, the forecast is for a steady stream of M&A activities in 2024 and even more favorable conditions in 2025. Business owners who are nearing retirement must prepare their companies for sale. They need valuation services and quality of earnings reports for effective exit strategy planning.
Legislation Impacting Exit Planning
Impending changes to the Estate and Gift Tax are causing a stir in exit planning. The lifetime exemption currently offered for estate gifting will be cut in half as of January 2026. High net worth business owners with plans to gift assets as part of their exit plans should obtain valuations now to determine if it is in their best interests to transfer capital before the exemption is significantly reduced. Learn more by reading this article: Understand Changes Coming to the Estate and Gift Tax Exemption.
The Role of AI in M&A Preparation
The integration of AI and data analytics has transformed how companies approach financial health. These technologies allow even smaller businesses to access sophisticated data analytics, providing deeper operational insights. Businesses can now better understand profit margins, identify high-performing products or divisions, and make more informed decisions about raising debt or inviting equity partners. Enhanced access to information helps companies align their growth strategies more closely with financial objectives.
Risks Encountered by Companies
Post-COVID-19, supply chain disruptions have been a major issue for many businesses, especially for clients near major ports such as Savannah and Jacksonville. Many have diversified their vendors to ensure continuity. Dealing with more vendors can put businesses at risk for sales tax liabilities. Integrating sales tax due diligence into a quality of earnings analysis can significantly reduce financial risks that can impede mergers and acquisitions.
Many business owners create risks by overlooking important details such as purchasing adequate insurance coverage, creating a will and preparing an estate plan.
How to Determine if M&A is in a Business Owner’s Best Interest
The best way for a business owner to determine if an M&A exit strategy is for them is to have a meeting with an M&A professional. Discussing plans with a professional can help the business owner understand how a buyer or investor would perceive their business. M&A professionals can identify risks, strengths and weaknesses in a business relating to a transition. They can also help to provide a perspective on when the best time might be to implement an exit.
Business owners know how to operate their business; however, they usually have only limited knowledge of all the options to execute a well-planned exit strategy. Here’s an article with more information about Preparing to Sell Your Business. Partnering with an M&A professional will help to increase the probability of a successful outcome of any exit strategy implemented.
Article written by Mary Roberts, Managing Director, Hancock Advisors
Hancock Advisors is a nationwide advisory firm specializing in corporate finance, transaction advisory, valuations, litigation support and investment banking. We help business owners, private equity firms, legal and financial advisors navigate transformation and challenges with confidence. Visit our website at hancock-advisors.com for more information.