At Mergers & Acquisitions’ Rising Stars of Private Equity SPEAK event last week, I was moderating a panel on Racing to Close Deals Before Tax Changes, when the conversation took an unexpected turn. We covered the scheduled topic and, indeed, some of the dealmakers agreed with the premise that the likely increase in the capital gains tax rate is adding urgency to finalizing transactions in 2021. But, of greater interest, they described a bottleneck that I can’t recall hearing about in the 15 years I’ve covered private equity.
“The market is hotter than it’s ever been – ever, ever, ever,” said Nickie Norris, co-founder, COO and CCO, New Heritage Capital. The potential tax change and resulting deal volume is affecting “the overall market and people’s availability to come to market,” Norris said. “I was talking to an investment banker yesterday who said that they are closed for business this year. They are so full of pipeline deals that they are bringing to market this summer, that they’re trying to get done by the end of the year, that they are not taking on new deals for this year.” Norris reported hearing the same thing from service providers and anyone involved in due diligence for deals. “The deal volume has the market full to capacity.”
The investment banks are “so capacity-constrained at the junior ranks that there are no extra bodies to write CIMs,” said Nicholas Stone, managing director, Cyprium Partners, referring to confidential information memorandums. Due to the high volume of transactions, some dealmakers are considering holding off until January 2022, when their deals might get more attention, Stone explained.
“I’m surprised we’re not seeing more investment banks taking a one-off and calling the 15 buyers that are really likely for a deal … and solving that bottleneck,” said Brian Behm, principal, Benford Capital Partners. “If you call the right people, you can still get a deal done.”
Is the M&A market too hot for investment banks and other service providers to handle? Will you be able to close all the deals you want to this year? I’d love to know your thoughts. Email me at [email protected]. And watch the panel here: Video: PE Hurries to Close Deals Before Tax Overhaul.
– Mary Kathleen Flynn