Economically speaking, COVID-19 was a “natural disaster.” That’s according to Brian Beaulieu, CEO and chief economist of ITR economics. Beaulieu spoke at the virtual State of M&A conference hosted by Cornerstone Business Services in February, helping business owners and advisors understand the market ahead.
Because the current recession was triggered by COVID-19, and not economic factors, we should bounce out of it quickly. Beaulieu predicts the next recession will occur around 2025 or 2026.
What that means is the outlook is good right now for businesses looking to grow through acquisition. Interest rates are at an all-time low. That makes this a great time to buy companies and leverage other people’s money. Interest rates likely won’t rise until late 2023, maybe not even until 2025.
For business owners thinking about selling, Beaulieu advises an exit by 2024. The economy is strong and should stay that way for the next few years. Plus, when interest rates are low, buyers can afford to pay more.
And yet, business owners need to be thinking about the net they’ll take away after selling their business, not the total purchase price. That’s because the Biden administration has proposed basically doubling the current capital gains tax rate.
When, and if, those tax increases will go into effect is unclear. Beaulieu says it could happen anytime from 2022 to 2024. But once they do rise, we can expect them to stay for the long-term. That’s because by 2030, the pressure from the national debt, social security, and Baby Boomer retirements mean the government won’t be able to afford any reductions in that revenue source.
In fact, conditions are such that the U.S. could be up against another Depression-era recession 10 years from now. So Beaulieu advises owners to “think long and hard” before holding on longer than 2029.
With a downturn looming in 2026, and capital gains slated to increase, business owners who were thinking about selling in the next five years are advised to accelerate that plan.
Roughly speaking, if you sold for $10 million today, you’d net $8 million after capital gains. If you worked hard to build up your company to $12 million by 2023, and the new taxes, according to the new tax plan, are already in effect, you’ll net out just $7.5 million.
If you’re not thinking about selling soon, borrow money to invest in yourself or an acquisition. Money is cheap, so if you’re not getting out, now is the time to grow. Just make sure you’re out of debt by 2029. There’s trouble ahead but for now, Beaulieu says, “This economy of ours is poised to go.”
"The entire process went smoothly and professionally. The BTS team kept me fully informed at every step. They worked hard and were effective in bringing the deal home."
"Skip and I continue to be grateful for all you have done to make the sale of Pure Flow come to fruition."
"BTS’s level of expertise in the process and close attention to detail enabled us to successfully navigate the deal."
"These types of transactions are often long and complicated and I doubt it could have been successfully completed without your close ongoing involvement."
"The outside objective point of view that you have brought us has been invaluable as we prepare for the rapid growth."
"John then found the right buyer and coordinated a seamless transition—he doesn’t miss a single detail."
"John immediately identified our strengths and experiences and discussed a business that ultimately was more in line with our goals."
"The BTS team came in, evaluated everything in a professional and thankfully non-threatening manner."
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Economically speaking, COVID-19 was a “natural disaster.” That’s according to Brian Beaulieu, CEO and chief economist of ITR economics.
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PlasTech Machining of Dunklee Road in Bow, a company recently acquired by DelCam Holdings, is in the process of rebranding with a new website www.PlasTechFab.com and expanded social media exposure.
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Precision Machining Company
Initially, liquidation was a serious consideration. It would offer a quick exit but would hurt loyal employees and disrupt the customers who had come to rely on its quality production.
Green Product Company
Our client owners could dig in for the long haul…However, this would take five years or more. Owners simply lacked the horsepower to do it.
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(T)he manufacturer would need to focus on growing EBITDA to capture interest from major strategic buyers and achieve a higher multiple of earnings.