Many plumbing and HVAC companies could change hands in the coming months as the country’s economic recovery kicks into high gear There’s a good chance 2021 will be a historic year for M&A activity because of the unprecedented market conditions the global pandemic has created. There was not a lot of M&A activity for parts of 2020, so there’s built-up demand for businesses that are ready to sell, and we could be playing catch-up throughout 2021.
There is also an evolving capital gains tax situation and a lot of financing available at low interest rates, and that is creating a perfect storm for anyone who wants to buy or sell a business.
Here is a look at some reasons why 2021 might be the ideal time to sell, merge, or acquire a plumbing or HVAC company.
The case for selling a business in 2021 For a seller, it makes sense to test the market now because the economy is opening up and there is less hesitancy in the marketplace.
Many business owners who were planning to sell last year might have decided to wait. After all, the market was highly unpredictable in 2020, and it scared both buyers and sellers into putting M&A off to see how things played out.
With the economy and health situation trying to return to normal and valuations holding up, much of this hesitancy is evaporating. That has created a situation where there’s motivation to get these deals done in a hurry. Business owners who ended up holding on to their companies for an extra year could be looking for a quick out now that they know they’ll be getting fair value.
Pandemic fatigue is a significant issue, too, so we could also see business owners who were thinking of selling in the next five years or so bump up their retirement plans. The stress of running a business during the pandemic was enough for many HVAC and plumbing business owners, pushing them towards the negotiating table in 2021.
Another elephant in the room is the potential new tax law that could repeal capital gains savings. Currently, long-term capital gains laws cap the tax rates on earnings over $441,450 at 20%. A Biden Administration proposal would increase the long-term capital gains tax for those earning $1 million or more to 39.6%. As such, any income made on the sale of a business would be taxed similarly to income, effectively doubling the amount the seller would have to hand over to the government.
If you’re thinking about selling your business in the next few years, anyway, unloading it now and avoiding this heavy taxation is advisable. Even if your company would theoretically be worth more in a few years, you could end up ahead of the game if you sell before these tax laws eat away at your earnings.
Why business acquisitions are advisable in 2021 From an acquisition or merger standpoint, there are many reasons why now is the time to expand your current HVAC or plumbing business.
For starters, there’s a lot of money available for borrowing, and low interest rates make it a perfect time to seek this credit. Banks need to lend money out to keep those interest payments coming in, and they’re offering unprecedented rates to do so.
Private-equity firms are sitting on loads of cash, too, and they can’t make their investors any money unless they find something to invest in. Whether these investments involve loans or direct investment in smaller companies, financial firms have funds and are looking to use them.
The result is a rare set of circumstances where credit is readily available at low rates in a situation that will likely never repeat itself.
And, if you need even more reason to be bullish on an impending acquisition, this pandemic has shown us that plumbing and HVAC are essential services. So, even if COVID variants lead to future lockdowns, people will still go ahead with home renovations or require emergency repairs.
Growing your organization under these advantageous conditions in an essentially pandemic-proof industry puts you in an excellent position moving forward.
Getting expert advice M&A can be a complicated topic if you don’t have the right advisors on your side. After all, this is one of the most important financial decisions you’ll make, one that will have a significant impact on your future.
The good news is that an advisor can provide you with insight on the mergers and acquisitions process, particularly as it pertains to HVAC and plumbing businesses. Your advisor will also offer services like accounting, valuation, research, and financial analysis, ensuring you have all the information you require before making a decision.
SF&P Advisors has decades of experience with mergers and acquisitions involving HVAC and plumbing companies in the Fort Lauderdale, Florida, area. Our team will help you navigate your acquisition or merger to achieve the best results for you, your employees, and your family. Contact us today for a free business estimate valuation.