June 22, 2021
Medline’s Race Against the Tax Clock
Medline Industries agreed to a more-than $30 billion transaction that sold part of the company to a consortium of Wall Street investors, making it the health-care industry’s biggest leveraged buyout. The Mills family had spent 110 years and four generations building a Chicago apron business into one of the largest private companies in the United States. Roughly 20 to 30 family members were expected to benefit from the transaction, and the family may be worth about $30 billion. The decisive detail is not only the valuation; it is the clock.
People close to the transaction said the threat of higher capital gains taxes helped motivate the family to complete the deal before the end of 2021, when higher rates could take effect. President Joe Biden had proposed raising the capital-gains tax rate to 39.6% from 20% for people earning $1 million. Democrats had not yet settled on a final plan, and uncertainty remained over whether any increase could be made retroactive to late April. In dealmaking, uncertainty is often more powerful than certainty because it forces owners to price the risk of waiting.
That same pressure was spreading across private U.S. companies. Founders, heirs, private equity sponsors, bankers and tax advisers were asking a simple question: how much could be saved by selling now? Founders Advisors in Birmingham expanded office space and increased staffing by 50% as more millionaire business owners prepared to sell at least part of what they built. Its chief executive, Duane Donner, described the market as the most vibrant in the firm’s history and identified taxes as the No. 1 reason.
This is a useful lesson for investment banking interviews: tax policy may sound like background noise, but it can change seller psychology, auction timing and exit volume. A founder who planned to step back gradually may instead choose a sale if the after-tax proceeds are materially higher today than tomorrow. A private equity sponsor may accelerate a portfolio exit, reduce a stake or prepare to buy assets that tax-sensitive owners bring to market. Rick Landgarten of Barclays framed the seller question bluntly: can the deal get done this year before tax rates rise?
The tax issue was not the only force pushing deals forward. Public markets were near all-time highs, supporting private-company valuations. Buyout firms held large amounts of dry powder after the pandemic. SPACs needed attractive targets, low interest rates supported acquisition financing, and investor appetite for IPOs remained strong. But taxes gave the market urgency, which is different from optimism.
EY found that about 65% of surveyed private equity executives expected tax policy changes to affect the timing of their exits. Some advisers also discussed alternative strategies, including taking portfolio companies public and receiving carried interest in shares to defer taxes until stock sales. Others floated triggering a tax bill earlier through deemed-sale transactions. The broader point is uncomfortable but important: family legacy, sponsor discipline and policy risk all meet in the same place when billions of dollars are at stake.