The new Tax Act, along with the burgeoning economy, portend exciting and fruitful 2018 for M&A activity. The Act specifically creates incentives for faster depreciation write-offs and expensing of both new and used equipment, certain software, and machinery. Thus, allocation of purchase price for acquired businesses will focus more on fixed assets, as well as depreciable IP.
Some of the more pertinent reasons to expect deal closings to increase are the following:
- Private equity groups (PEGs) must commit their funds, or risk returning them to the investors. There are more PEGs in existence than in any prior year, with new funds still being created.
- Debt sources are more prevalent in terms of sources and types of lending, requiring less equity to close a transaction.
- Billions of dollars in taxes will be repatriated to the U.S. We expect some of these monies will be allocated to acquisitions, to make up for the lack of organic growth.
- The tax savings incentives for asset sales, which buyers prefer anyway, should stimulate greater activity. In addition, the lower corporate taxes should result in transactions closing.
- Multiples are climbing, which will portend more companies getting serious about selling.
- Access to better data can shorten the due diligence process, leading to deals closing in shorter periods of time.