PROVIDENCE – Looming tax hikes from the new presidential administration and a still-surging virus will drive strong strong merger and acquisition activity in 2021, according to Citizen Bank N.A.’s annual survey published on Tuesday.
The 2021 Mergers and Acquisitions Outlook reflects survey results of 700 C-suite executives at middle-market companies with $50 million to $1 billion in revenue. Business leaders surveyed named the pandemic and expected capital gains tax hikes imposed by President Joe Biden’s administration as the trop drivers of mergers and acquisitions – a significant departure from prior surveys in which the economic outlook was the main factor in a company’s consideration of M&A transactions, according to Citizens.
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With a tax reform bill not expected until next year, tax-driven acquisitions as well as those related to vaccine rollout will emerge more in the second half of the year, the survey said.
Still, after a “muted” or even “weak” M&A environment in 2020, according to nearly half of corporate and private equity respondents, the faster-than-expected rebound in consumer confidence and pent-up demand led to a rise in transactions at the end of 2020 that has spilled over into the first quarter of 2021, according to Kevin Burke, a managing director for Citizens.
“Everyone initially anticipated with pandemic it would be a draconian recession,” Burke said. “That things rebounded gave investors confidence to buy and sellers strength to leverage in the market.”
Despite some improvements to the economy, overall economic optimism was down compared to prior survey years, with 47% of middle-market companies anticipating “broad improvements” in 2021. However, a greater percentage, 55%, are confident about their own corporate outlooks, according to the survey.
Sellers will continue to have the upper hand as companies continue to consolidate, tightening the supply among prospective buyers, according to Burke. Not only will companies in hard-hit industries like tourism and hospitality be more likely to consolidate or join a better-capitalized holding company, but so too will those in health and technology industries because they have been so “prolific and profitable,” Burke said.
Top reasons to sell among survey takers were strategic growth opportunities (named by 67%) and taking advantage of current valuations (44%). Increasing revenue and growth was the top reason to buy, according to 61% of those surveyed, while improving operation efficiency was backed by 44%.
Partnering with international companies remained a low priority for both buyers and sellers, continuing what has been a trend for three years.
Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.
