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CMF Forecast – Q4 Increases in Number of Middle Market M&A Transactions over 2015

By September 15, 2016CMF Blog

I’ve previously described the last fifteen months of Private Equity as the “Comfortably Numb” phase – low interest rates, low growth, no major, meaningful change in macroeconomic events to drive any substantive movement off of trend.  However, we are forecasting Q4, 2016 as a quarter where a trend-breaking number of deals in the middle market get done.  Here is the logic:

  • While there have been fits and starts, we believe clarity of an interest rate rise of at least 50 – 75 basis points will come into view by the end of the year
  • Business owners and investors will begin to see the “long in the tooth” recovery and think to reposition their capital before a recession
  • The focus will turn substantively to the election and the real chance of a Democratic president and Congress, as well as the chances of higher capital gains rates and changes in the carried interest tax treatment for private equity

 

In 2010, CMF created a template to compute the potential impact of capital gains rates on seller behavior. Our analysis shows that a 5 percentage point increase in the capital gains rate from 25% to 30% would require a potential seller to generate 7.1% in additional EBITDA just to stay even on an after tax sale proceeds basis.

Request a copy of the tax template and run your own scenarios by clicking here.

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