As we all know far too well, economic growth is not timeless and factors do eventually intercede to cause the economy to slow. Since by many estimates we are now in our ninth year of economic expansion (depending on when you calculate the starting point), it is prudent to assume that eventually the tide will once again turn.
And when it does, as we have seen in the past, M&A activity and buyer activity will also be impacted.
This is how Mergers and Acquisitions Magazine described M&A trends in a recent article:
A certain mood of urgency prevails, as dealmakers seek to close deals quickly, while conditions remain favorable. The advisors interviewed for this story say they don’t see signs of an impending recession; however they are closely monitoring bellwethers, including corporate earnings, wage pressure, global supply chains and slowdowns abroad. They are recommending that clients be prepared for an economic slowdown in the next two years.
What this summary implies is that the current seller’s market is still strong and ripe for sellers who are prepared to begin negotiating with buyers. Here are some specific excerpts by experts from Merger and Acquisition Magazine’s article:
According to Paul Aversano with Alvarez & Marsal:
What opportunities and challenges do sellers face?
Not many challenges. I do believe it is a seller’s market, as the M&A process in the U.S. is extremely efficient. Biggest challenge I see is managing the competitive process, given the amount of capital out there chasing deals, as well as overly-aggressive buyers looking to transact. I believe it is a prime time to be a seller, given the amount of dry powder in the market, the pressure to deploy capital, and historically record-high valuation levels.
This is how Karen Davies, Huntington National Bank, looks at the current environment:
What is your outlook for middle-market M&A in 2019?
With more than $1 trillion of private equity dry powder and strong balance sheets of the corporates due in part to tax reform in 2018, investors are clamoring for high-quality assets, and there is an urgency to deploy capital in the form of acquisitions. Our general view is that 2019 will remain a very active year for M&A, comparable to 2018. The back half of the year shows positive indicators for continued M&A volume across all sectors.
And here is the view of Peter Lombard, Piper Jaffray & Co.:
Do you expect an economic downturn?
With each passing great year in M&A, probabilistically, the economic winds have to shift at some point, motivating sellers to explore their options now, rather than wait. We are working with clients to think about the impact of a recession on their projection models. We work to accelerate and de-risk the sale process and front-end load as much buyer due diligence as practical, with seller Quality of Earnings and often market studies. Deal quality at this stage in the cycle becomes ever more critical, as buyers analyze how targets might perform in a downturn.
To sum all these up we can add this: Why are business owners waiting while we are experiencing one of the strongest seller’s markets in decades? The answer is all too often that one of two factors come into play:
Deciding to exit is never easy. We have been involved in working with business owners for decades and we know all too well that the decision to seek a buyer not only involves the emotions of the owner, it often has a similar impact on entire families, especially where a business has been in the family for several generations.
This is why we conduct educational exit planning conferences throughout North America. The fact is every business owner knows that he or she will need to exit one day, but very few have taken the time to actually create an exit plan of any sort.
We help business owners get to that point and then, because our relationships with our clients last at least five years, we also help them prepare the business to be buyer ready. We fully understand how the two factors are linked to one another and often our roles are far more detailed and delicate than our contemporaries who focus on selling larger, publicly traded companies.
But getting back to the facts and the analysis, it is clearly a prime time to negotiate with a buyer for your business. To learn more about getting both yourself and your business ready to do so, please contact us.
And often the best way to decide to move forward is to hear from other business owners who have done so already. Here are a few of our clients who can tell you what drove their individual exit journeys:
Carl Doerksen is the Director of Corporate Development at Generational Equity.
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