M&A Boom Could Be Sustainable Under The Right Conditions
By Founders Advisors
Jun 18 2021
Guest post by Neal England, managing director at Founders Advisors. The original article may be viewed on the Dallas Business Journal website and below:
The number of mergers and acquisitions has skyrocketed over the past year, and one local leader says the right formula of market conditions has created an environment that is beneficial to both sellers and buyers. Founders Advisors, an M&A advisory firm with a North Texas office, recently appointed local Neal England as managing director and business services leader to facilitate transactions for middle-market clients. England, an external hire, said he wants Founders Advisors to be the premier place for sell-side human capital management as M&A action continues to boom.
“There are lots of transactions that are occurring, but i don’t think it’s necessarily sustainable,” England said. “Could this be sustainable? Perhaps if you had the right conditions. Taxes aren’t as high as we think (they could be), employees get back to work, the stimulus gets eased back. I think we’ll still continue to see a vibrant M&A market going forward.”‘
According to a Refnitiv report from late April, the first quarter of 2021 saw global M&A activity up 94 percent year-over-year and marked the highest year-to-date total since 1980. Major contributors to the M&A pickup are factors like the COVID-19 pandemic, which has influenced many entrepreneurs who were previously considering selling their businesses. Low interest rates and the potential capital gain tax increase-which could take effect later this year and would impact the sale of businesses-are also influencing a flurry of sellers to try and take advantage of those variables, expediting deals.
“If you’re in that age bracket of an entrepreneur, and you’ve even thought about selling and were surprised by COVID, then that will definitely have an impact on ‘how do I avoid the next downturn?'” England said. “That would fast track the thinking of anybody who remotely thought about selling so they’d probably move that up on the calendar.”
An increase in buyers is also making the market more seller-friendly. Firms, companies and institutions are eager to deploy capital, England said. Bain & Co. analysts estimate there’s more than $3 trillion total in dry powder, about one-third of which is attributed to buyout funds and special purpose acquisition companies.
Scott Fuzer, a buy-side advisor who leads M&A at West Monroe in Dallas, mentioned the same factors England cited to explain the hot and fast M&A environment. He added the spate of deals this year shows no sign of slowing
England said since both sides of the deals have been impacted – buyers anxious to enter the market and sellers anxious to find stability- the M&A environment has been fast-paced.
“Anytime you have an environment that causes you to expedite a deal faster than you’d like, you have to be really careful,” England said. “Because in very complex transactions, intimate transactions, a lot of things can go wrong.”
England said the buyer can end up being the benefactor of rushed due diligence.
In the business services sector, where England specializes, he said remote learning has shot up over the last year, along with technology staffing. England has worked in sell-side business service transactions since 2014, after working as an operator in several businesses. He came to Founders from leading the human resources management practice for locally-based investment bank Capital Alliance Corporation.
He said he had been in talks with Founders’ leadership for the past year and was impressed with the resources and talent it has to support a wide breadth of transactions. The company employs about five people locally out of about 40 people across its three offices in North Texas, Houston and Birmingham.
England said the Dallas team will add researchers and analysts, but wasn’t sure by how many hires. He’s hoping to expand the business services practice across education technology and professional employer organization sectors.