John Lombari bought R.I. Carbide Tool Co., a Smithfield manufacturer of cutting-tool technology, 25 years ago. Last March, he sold the company with an eye on retirement.
“It was a turnaround situation when I bought it 25 years ago,” he said. “I’m 67 years old … and the company is now doing really well and will do well for the foreseeable future.”
Lombari, who sold to the Michigan-based strategic buyer Arch Global Precision LLC, was one of many business owners in Rhode Island and across the country to sell his business last year.
On balance, 2017 had a fair amount of mergers and acquisitions, known also as M&A activity. But concerns about the economy, politics and market volatility, along with regulatory uncertainty, contributed to activity being muted compared to the prior year.
The activity failed to reach 2016 levels, according to a Deloitte report on M&A trends called “The state of the deal.”
“While those concerns are diminishing according to findings from our new survey, 1 in 8 respondents cites delayed legislation as a potential obstacle ahead,” according to the report.
In July, Steve Baronoff, Bank of America’s global chairman of mergers and acquisitions, went so far as to say people were putting deals “on pause” to let some of the uncertainty pass surrounding health care and taxation.
But now, with tax reform signed into law, 2018 could see more folks looking to follow Lombari’s lead, as M&A activity is expected to grow.
“Survey respondents remain generally optimistic that the number of M&A deals will increase over the next 12 months,” according to Deloitte.
Seventy-eight percent of corporate respondents and 76 percent of private-equity respondents said they expected an uptick in the number transactions during 2018.
The bullish sentiment is echoed at the local level.
“Recently passed tax reform should be a positive driver going forward,” said Guy Asadorian, wealth director at BNY Mellon in Providence.
Asadorian, who helped Lombari on his deal, specializes in M&A and helps business owners work through business succession. He says the tax deal even pushed some deals off until this month, as buyers and sellers hoped to take advantage of changes from the new tax law.
The new law, signed last month, reduces the corporate tax rate from 35 percent to 21 percent. What that means – in broad strokes for M&A – is that deals could yield greater return on investments for buyers.
The trend – if realized – would give the overall M&A community a boost.
“Strategic [buyers], particularly on the middle market, will benefit from the reduction in corporate taxes,” Richard Langan Jr., a partner at Nixon Peabody, told Mergers & Acquisitions, a trade magazine that covers middle-market deals.
The trend also likely comes as a welcomed sign to business owners – especially those such as Lombari that are eying retirement – who have put off succession planning in the last few years. M&A activity comes in cycles, and timing is everything. Owners who waited too long prior to 2008 suffered when the market collapsed, and for the companies that survived the downturn, many were forced to sell low, or wait for the rise of a new cycle, pushing off retirement.
Lombari said the timing of the economic downturn didn’t impact him, but he did start talking with the Michigan buyers soon afterward and kept the conversation going until he was ready.
The last few years have largely been considered by M&A professionals as the current cycle’s peak, although the new tax law could now extend that.
“The predominate reason for sellers looking to exit continues to be baby boomer generation owners with no succession plan in place and recognizing we are near the top of the current M&A cycle,” Asadorian said.
‘Strategic [buyers], particularly on the middle market, will benefit from the reduction in corporate taxes.’
RICHARD LANGAN JR., Nixon Peabody partner
Rhode Island deal-making trends largely follow national trends, Asadorian added, although its small size makes it more difficult to predict which industry will realize the most activity.
Nationally, acquiring technology assets ranks No. 1 in terms of the strategic driver for M&A deals, according to Deloitte. Technology, in turn, has the potential to improve the deal-making process.
“The introduction of new technology for M&A transactions has moved deals out of the spreadsheet age both for companies that have adopted the tools and those that are considering using them,” according to the report.
Lombari, meanwhile, recommends other business owners thinking about retirement take a hard look at their options. This month, he will take on an advisory role at the company, giving him more time to spend at home with his wife.
“All your life you work to make money and then you want to make sure that you don’t lose it,” he said. “That’s a big part of selling your business.”
Eli Sherman is a PBN staff writer. Email him at Sherman@PBN.com, or follow him on Twitter @Eli_Sherman.
