US Tax and the Shrinking Window of Opportunity

By Mark Williams, Chief Revenue Officer, Americas

With President Biden now ensconced in the White House, and with the US COVID-19 vaccination program enjoying a good measure of success by global standards, attention is turning to other matters, such as how the new administration may affect dealmakers’ plans.

Much ink has been spilled about how President Biden’s pandemic stimulus package and infrastructure programs will impact the economy. But there is another, related scenario that may have a more explicit and near-term impact on organizations’ M&A strategies, namely the projected increase in the corporate tax rate in the US. In play, too, are plans to treat long-term capital gains (currently taxed at 20% in the US) as regular income (taxed at 37%). The precise extent of the increase in the rate of corporate tax is yet to be determined, though the Biden administration has previously proposed a jump from 21% to 28%.

But in more recent pronouncements, it appears the White House is open to some degree of compromise with Big Business, though even those industrialists who balk at the idea generally acknowledge that President Biden’s tax agenda has a good deal of public support. The question, then, is how dealmakers might proceed in the interim.

After the pandemic crash in the first half of 2020, M&A activity soared in H2 on the back of pent-up demand and as postponed deals were recommended. In the US one can add to those Keynesian ‘animal spirits’ the need to outrun forthcoming regulatory changes. One should expect to see dealmakers trying to get transactions done speedily before sellers begin seeking higher valuations to compensate for the higher tax rate and new capital gains rules. Changes could well take effect before the end of this year or in early 2022, so it is in dealmakers’ interest to take advantage of this shrinking window of opportunity.