What We’re Discussing with Clients
A potential capital gains tax increase whose timing and amount is unknown is driving many business owners to work towards a sale before the new tax becomes law. This is driving a significant influx of deals into the market, causing back-ups by many service providers (QofE firms, attorneys, and other diligence providers). When developing the timeline for deals, we are advising our clients not to cut corners; be smart about where to shorten the process, but don’t sacrifice the ability to close the deal by rushing to market.
Many sellers are in the midst of investing in the growth of their business. This often requires meaningful capital outflow during a sale process, ultimately benefitting the new owner. If negotiated appropriately, buyers should reimburse sellers for those dollars since the benefit of the investments will accrue to the new ownership post-closing.
Completing a sale is usually the largest and most important transaction of a business owner’s life. The transaction team should include specialists in each discipline, including M&A legal, investment banker, and M&A tax advisor. We find the biggest mistake a seller can make is relying on “jack-of-all-trades” advisors that don’t bring the experience and specialized knowledge needed to provide maximum value to the seller.
F&B M&A Inches Closer To Pre-COVID-19 Levels
- Global Food & Beverage M&A deal volume decreased in Q1-21 compared to Q4-20, as total deals decreased ~13% to 481. Importantly, the 481 total deals were ~5% lower compared to the average of the last 12 quarters, demonstrating a slightly suppressed level of M&A to start 2021.
- In contrast, U.S. Food & Beverage M&A deal volumes are showing tremendous growth despite the uncertain economic environment, particularly in foodservice. While transaction activity fell compared to Q1-20, deal volumes increased ~10% vs. Q4-20 and ~59% since the peak of the pandemic in Q2-20. Many sectors are starting to return to pre-crisis levels as companies continue to explore M&A opportunities as an avenue for inorganic growth.
- When comparing YoY levels, U.S. Food & Beverage M&A deal volume fell in Q1-21, decreasing by two transactions to 175. Financial buyers made up ~9% of all Food & Beverage M&A transactions in the U.S. in Q1-21, in line with the three-year average of ~10%.
- These recent trends suggest the rest of 2021 will be a strong year for Food & Beverage M&A. In addition to favorable Q1-2021 economic indicators, interest rates remain at historic lows, private equity firms have $2.8T in undeployed capital,(1) and the Biden administration is pushing a $2T relief plan, which aims to focus on infrastructure, affordable housing, and American manufacturing.
Read Food & Beverage M&A Pulse Q1 2021 Full Report