Hartford Business Journal

30 HARTFORDBUSINESS.COM | MAY 31, 2021 Opinion & Commentary EDITOR'S TAKE CT should end extended jobless benefits this summer; rebuilding labor force creates new opportunities S hould Connecticut end its participation in paying jobless residents an extra $300 in weekly federal unemployment benefits? It's a key question many state governors are asking themselves as the U.S.' economic recovery continues to be hampered by a labor shortage, particularly for lower-wage jobs. At least 21 (mostly red) states have already told the federal government they will no longer be paying out the extra funds, which were established during the pandemic and are scheduled to end this September. Gov. Ned Lamont said he plans to continue the extra jobless benefits until they expire, but I think the additional aid should run out sooner, maybe July 1, as long as the spread of coronavirus continues to subside and more people get vaccinated. The extra pay is keeping some low-wage workers out of the labor force, contributing to Connecticut's lackluster job growth in recent months and creating headaches for some small business owners in various industries — from restaurants and retailers to advanced manufacturers — who can't find people to fill jobs. That being said this isn't a black-and-white issue. There are still some people who are skittish about returning to work due to concerns over health and safety, and child care issues — which forced many women out of the labor market during the pandemic — remain a problem. Employers need to be empathetic as we slowly return to normalcy. And even though Lamont is leaving in place the extra jobless benefits, his labor department recently reinstituted the mandatory work-search requirement in order for people to qualify for unemployment compensation. He also announced a program that will give up to 10,000 long-term unemployed residents a $1,000 bonus if they start (and keep) a new job now. Both steps should get more workers off the sidelines, although the bonus payment raises serious questions about the government's role in spending public money at the tail end of this pandemic. The reality is we've all been part of a socialist experiment during the past year, with both businesses and individuals getting free or cheap money from the government. Some, or maybe even most of the funding may have been necessary to help businesses that were forced to close or restrict capacity, and people who were laid off through no fault of their own. But in many ways the government established new relief programs — like the Paycheck Protection Program or direct stimulus payments to individuals — that I'm not sure should be automatically replicated in the next economic downturn, unless it's caused by another health crisis that forces people to shelter in place to prevent the spread of a deadly virus. And as Connecticut tries to rebuild its labor force we should also remember the job-shortage issue isn't new. Manufacturers and other trades have had difficulty filling open positions for years, hindering our economic growth. And many companies in those sectors are paying good middle-class wages. As more low-wage workers re-enter the labor force in the coming months it presents a great opportunity for the state and private sector to promote and market the higher-paying, non-college degree jobs that are available in key sectors of the economy. If we are smart, or even lucky, maybe we can use this short-term problem to help solve a long-term issue. As we head out of the pandemic new opportunities exist for both workers and employers. EXPERTS CORNER Buy or sell? The transaction market is hot, with opportunities abound By Kevin Donovan The onset of the pandemic left small business owners with more questions than answers. But one answer that many agreed upon was that maybe it was time to sell. An uncertain future in terms of both pandemic duration and potential devaluation led to a hot mergers and acquisitions market beginning at the close of the second quarter in 2020. Almost a year later, there are no signs of that momentum slowing down even with the economic recovery under way. A looming increase in the capital gains tax by the Biden administration may be another catalyst for sellers to move quickly. But even though the current climate is considered a buyer's market, the uptick in activity and plethora of buyers also make it a good time to sell. Why is it the time to buy? Business owners eyeing an early retirement may be more inclined to sell quickly with a reasonable valuation. Plus, if a small business held its own amid the storm of 2020, it shows resilience, and resilience means value. Sellers who were able to pivot during the pandemic will certainly reap the benefits of that flexibility. Conversely, buyers can potentially get a good price on companies with strong fundamentals that are poised for growth. Sometimes that growth may be best realized in combination with buyers in the marketplace looking to acquire a business that rounds out their offerings, serves as a platform or fills a gap in their portfolio. With so many ready sellers, there's an opportunity to assemble a dream team that adds a new division, geography, product, service — or all of the above. Why is it the time to sell? Many organizations are in acquisition mode. While a buyers' market typically is not the ideal time to sell, a routine obstacle in selling a business is often the lack of qualified and interested buyers. The sheer volume of transactions means a business owner is more likely to find a buyer than at any other time in recent memory. Some companies have become more valuable during the pandemic — think advanced manufacturing, infrastructure, mobile services and technology all the way to fitness equipment and anything that goes into setting up a home office. The microchip and semiconductor market is hot, primarily due to the work-from-home revolution and the continued development of mobile-enabled technology. What do the numbers from 2020 mean? While a good 2020 is a good thing, a bad 2020 isn't necessarily a bad thing. How to treat the numbers from 2020 in determining a company's valuation is a bit of an open question. One option is to treat the financial performance of 2020 like any other year. Then there's the opposite approach: Ignore 2020 completely and chalk it up as an anomaly we will never see again. Some feel the numbers from last year still have to be taken into account to some extent, and an attempt at quantifying the impact of the pandemic is certainly a complicated task. This flexibility allows for both buyers and sellers to potentially steer the structure of the deal toward a more favorable outcome. Will capital gains bring the pain? The Biden administration's American Families Plan contains a provision that would raise the capital gains tax from 20% to 39.6% on individuals with over $1 million in taxable income. Consider someone who has spent their life building a business to a $5 million valuation. Selling in a cash transaction with capital gains at 20% means a $1 million tax bill. Under the proposed plan, that tax bill doubles. Do they hurry to sell before the end of the year and hope the new rule isn't applied retroactively? Do they work four more years and see if potential new leadership in Washington reduces the capital gains rate? It could go either way, but for now, this unusual market that is advantageous to both buyers and sellers continues. Kevin Donovan is a partner at the Connecticut accounting and advisory firm FML where he leads the firm's transaction services practice. Greg Bordonaro Kevin Donovan

• Cover