By Vince DelaRosa, 05/15/2023
M&A business lifecycles perform well when structured properly. However, with the introduction of a Native American tribe into deals, this is next level!
Mergers and acquisitions (M&A) are transactions that involve combining two or more companies to create a larger, more profitable entity.
In general, low-tax environments benefit M&A transactions. A tribe can provide that environment while also providing distinct business features and advanced strategies.
Let's look closer at the significant advantages that a tribe can offer M&A transactions.
LOWER TAXES – “This is a Natural Advantage”
Tribes can offer a lower corporate taxation environment which can make it more attractive for companies and investors to engage in M&A transactions. Retaining more profits can foster more growth or greater returns.
More deals are possible in a low taxation environment. When taxes are low, companies are more likely to engage in M&A transactions, which can create a more competitive market for deal flow. This can lead to higher valuations for target companies and better terms for buyers, which can improve the overall performance of M&A transactions.
GROWTH – “Measurable Growth is Better Realized”
M&A as a business growth strategy is a smart move, especially with a Native American tribe.
Partnering with a tribe can extend unique legal status to M&A deals. Some of the benefits include tax advantages, regulatory exemptions, and access to specialized knowledge and resources.
Partnerships can leverage the tribe's expertise in a particular industry, or your deal can gain access to their extensive networks. Additionally, tribes have strong relationships with government agencies, which can help M&A transactions navigate regulatory requirements more effectively.
In short, partnering with a tribe through an M&A deal can be a smart move for businesses looking to grow and expand their operations. Businesses can unlock a range of benefits that can help them achieve their strategic goals and succeed in the long term. I speak more on this idea below.
BUILT IN MARKETPLACE - “Do Business with Advantages”
One of the largest market buyers is a national buyer, they are located in all 50 states, and they spend over $500 billion dollars annually on goods and services. I am describing the U.S. Federal Government.
Tribes can elevate business transactions with the federal government using a business pipeline of contracting under the FARs regulations.
By partnering with a tribe, businesses can gain access to federal contracting opportunities, which can provide a significant boost to their bottom line. For M&A transactions, this could be a significant blueprint for consistent margins and growth.
Tribes have a unique legal status that can offer many benefits to M&A transactions, particularly when it comes to federal contracting. Tribes have a government-to-government relationship with the federal government, which provides them with strong access to contracting opportunities.
"Roll-ups, buyouts, and IPOs could be significant in these scenarios. Further, holding companies that are publicly traded or sitting under LP structures, and institutional investors could gain margins within a tribal model. Example, a tribal JV lowers taxes immediately, and increases revenue under specialized corporate contracting."
Tribes have a unique ability to efficiently navigate the federal contracting process, resulting in a velocity effect. Businesses can elevate their transactions, increase market capitalization, and create an advantageous environment for M&A transactions by leveraging contracting pipelines. Some of the contracting opportunities include set-asides, which is a $100 billion dollar a year nuanced market option for tribes and others.
SAFETY – “No Legal Prohibitions”
Tribes are good business partners. With a well written joint venture model, investors and businesses can easily be protected. There are various ways to craft deals that can ease any perceived legal questions.
The main question has been, “We cannot sue a tribe.” This is not true. We can create unequivocal waivers of sovereign immunity and legal clawbacks that respond to these questions. There is zero risk, everyone is protected.
CUSTOMIZED EXIT STRATEGIES – “Date Certain Exits with a Tribe”
Native American tribes can offer a unique exit strategy for M&A transactions. We can develop customized terms and ensure exits when you want them to culminate!
PLUG AND PLAY - M&A Simplified: “Wash, Rinse and Repeat”
A shift in business practices sometimes require a pivot to a more sustainable and cleaner model. Ideally, it would be a repeatable business model. We offer that with a tribal model.
A tribal model simply performs better. For brokers, private equity, venture capital, private investors, and businesses, this can serve as a platform to smooth out transactions as you elevate to better performance through the M&A lifecycle.
Our model offers four important facets:
1.) Built in hedge with lower taxes.
2.) Offers negotiation leverage with clean exits.
3.) Offers revenue options in a multi billion-dollar annual marketplace.
4.) Provides a business edge with much better performance throughout the lifecycle of the M&A transaction.
BEYOND FEDERAL CONTRACTING - "Unlocking Growth"
Now besides federal contracting there are robust options in the M&A space across the board. In fact, there is anticipation of a surge in M&A activity. As such, middle American market options present an opportunity to unlock growth and real value creation.
After a relatively slow start in 2023, the M&A landscape in the United States is showing signs of resurgence, setting the stage for increased deal-making in the coming quarters. As smaller to mid-sized companies face challenges posed by tough financing markets and limited access to capital, they are actively exploring strategic alternatives, including acquisition deals, to enhance their value. With compressed valuations and growing confidence in boardrooms and CEO suites across various industries, the foundation is laid for a wave of transactional activity.
If we explore the key drivers and trends shaping the M&A landscape, propelling organizations towards growth and value creation, here are a few trend drivers:
Accelerating Growth and Driving Scale:
The pursuit of top-line growth and the need for scale are driving forces behind M&A activities across industries. Companies are seeking opportunities to expand their market presence, gain access to new technologies, and diversify their offerings. Through strategic acquisitions, organizations can achieve economies of scale, optimize operations, and enhance their competitive positioning in a dynamic market environment.
Stabilizing M&A Volumes:
Although the beginning of 2023 witnessed a relatively subdued M&A landscape, industry experts anticipate a significant upswing in activity. The slow start was expected, given the lingering impact of the pandemic and associated economic uncertainties. However, as market conditions stabilize and confidence rebounds, companies are gearing up to capitalize on acquisition opportunities. The second half of the year is poised to witness a surge in deal-making, potentially rivaling the pre-pandemic levels of 2020.
Large Caps and Select Acquisitions:
Large-cap companies, equipped with strong financial positions, are well-positioned to pursue strategic acquisitions with confidence. These organizations possess the necessary capital and resources to evaluate potential targets and execute deals over the next six to twelve months. As quality businesses become scarcer due to industry consolidation, larger players are intensifying their efforts to secure desirable assets, fueling competition for acquisitions.
Smaller Caps and Strategic Alternatives:
Conversely, smaller to mid-sized companies face greater challenges in securing financing and extending their runway. Tough financing markets have compelled these companies to carefully consider strategic alternatives. With limited access to capital, many organizations are actively exploring M&A as a means to unlock real value and ensure long-term sustainability. The convergence of challenging financing conditions and the pursuit of strategic alternatives is expected to drive a surge in M&A activity during the latter half of the year.
Truly, as the business landscape enters a recovery phase in 2023, the outlook for M&A activity in the United States appears increasingly optimistic. The convergence of tough financing markets, compressed valuations, and the imperative to accelerate growth and achieve scale has set the stage for a resurgence in deal-making.
Large-cap companies are well-positioned to pursue selective acquisitions, while smaller to mid-sized firms actively consider strategic alternatives. The second half of the year is anticipated to witness heightened M&A volumes, shaping the future business landscape by driving innovation, consolidation, and value creation for industry stakeholders across sectors.
As you can see here, partnering with a tribe for M&A transactions offers many benefits for businesses and investors. These benefits include tax advantages, stronger margins, regulatory exemptions, access to specialized knowledge, and exclusive contracting opportunities in a robust marketplace.
If you would like to learn more, feel free to contact us here.
Vince DelaRosa is a former legislator for an American Indian tribe and the founder of Native Advisors.
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