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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Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
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