2026 Estate and Gift Tax Exemption Change:
As we look ahead to 2026, middle market business owners face significant changes with the estate and gift tax exemption, which is scheduled to reduce from $13.61 million per person ($27.22 million for a married couple) today to roughly half of these amounts beginning January 1st, 2026. This impending shift presents both challenges and opportunities in the M&A landscape.
Accelerated Transactions: Seizing the Window of Opportunity
The reduction in the estate and gift tax exemption is expected to create a sense of urgency among business owners. Many will look to expedite M&A transactions to benefit from the higher exemption before it decreases. This urgency can lead to a surge in market activity, with owners keen to finalize deals while the tax environment is more favorable. By acting promptly, you allow time for preparing your business for a sale transaction in 2025.
Market Dynamics: Timing Your Moves
The impending change is likely to create a spike in M&A activity leading up to 2026, followed by a potential slowdown as the market re-adjusts. Strategic planning and preparation will be essential to capitalize on the wave. The U.S. experienced a similar phenomenon in 2012 leading up to the implementation of the American Taxpayer Relief Act (increasing the Federal Capital Gains Rate), where middle market deal volume increased by approximately 34% over 2011 as business owners aimed to complete transactions before the new tax provisions came into effect.
Increased Advisory Demand: Leveraging Expert Guidance
With impactful changes on the horizon, there will be a heightened need for expert advisory services. Even if you are not contemplating an immediate sale of your company, it is beneficial to begin preliminary discussions with an estate tax advisor and an investment banking advisor for several reasons:
- Hexagon Capital Alliance (“HCA”) can provide relevant and valuable insights into market trends, helping you make informed decisions.
- We can assist with your company’s strategic planning, helping you to position the company when it is time to go-to-market.
- The process of selling a business involves numerous complexities, including due diligence, negotiations, and regulatory compliance. Having the luxury of time to understand the nuances of your business will help ensure that the process goes as smoothly as possible as opposed to waiting until the “last minute” to contact an investment banking advisor.
- Our goal is to maximize value for our clients. By working with you early, we can take an offensive approach once the decision is made to sell your business. By working with HCA well before contacting buyers, we can make the process as efficient as possible, reducing execution risk and accelerating the time to close. With the anticipated tax changes, maximizing valuation becomes even more critical as owners aim to secure the best possible deal before the new estate tax rate and gift tax exemption is in effect.
Starting the M&A process early with the assistance of an investment banking advisor provides business owners with strategic advantages, including optimal timing, maximized valuations, favorable structure, and efficient transaction management. These benefits are crucial for navigating the upcoming 2026 tax changes and ensuring that business owners achieve their financial and legacy goals. Engaging with an investment banking advisor now is a proactive step towards securing a successful exit strategy.