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Demand For Mergers & Acquisitions Heats Up Dramatically

By Generational Equity

M&A Heats Up

A recent article in Fortune magazine sums up what we have been experiencing at Generational since the middle of 2020: The demand for deals to acquire from buyers of businesses is at an all-time high and shows no signs of letting up. This is the data from a Fortune article entitled, “M&A Activity has Already Blown Past the $2 Trillion Mark in a Record-Breaking 2021”:

So far in 2021, global mergers and acquisitions have totaled a record $2.4 trillion, up 158% from the same period last year, according to a Refinitiv Deals Intelligence report out Wednesday. That marks the highest year-to-date total going back to 1980 when Refinitiv’s records began (the first quarter was also a banner few months for M&A).

“As the surging stock market continues to drive confidence, and interest rates remain at record lows making borrowing for acquisitions cheap, dealmaking continues at a dramatic pace,” Lucille Jones, a Deals Intelligence analyst at Refinitiv, wrote alongside the report.  At some firms, there has been anecdotal evidence to suggest this forward calendar [year] is out of control in terms of deal demand.

Our YTD data indicates another record year for Generational since the number of deals we have closed so far this year is up 55% over last year – and last year was a record for our firm as well!

So our data concurs with Fortune’s in that 2021 will most likely be a record year for M&A activity overall.

The key question you need to ask is this: What could slow this seller’s market down? The second paragraph in the quote above mentions “confidence” and one major factor that can water that confidence down: Interest rates. As we mentioned in our post on 8.2.21:

Federal Reserve officials signaled they expect to raise interest rates by late 2023, sooner than they anticipated in March, as the economy recovers rapidly from the effects of the pandemic and inflation heats up. Their median projection showed they see lifting their benchmark rate to 0.6% from near zero by the end of 2023. In March they had expected to hold it steady through that year. The Fed’s change in tone and new forecasts were “a wake-up call to the market” about the central bank’s likely response to higher inflation.

Since nearly every transaction has some portion of the purchase price financed, interest rates can play a key factor in impacting the time it takes to get deals done and the number of buyers that are actively in the market at any given time. Given the fact that inflation is rearing its ugly head in nearly every facet of the economy right now, it is plausible to assume that the Fed may act even sooner to raise rates.

So if you own a company today, and are even contemplating an exit in the next few years, the time is ripe for you to learn as much as you can about the importance of timing in an exit strategy. A great place to start is at a Generational Growth and Exit Strategy Conference. Even if you have been to one before, trends change rapidly and the more knowledge you can gain today will only help you going forward. Here are some helpful links to get you started:

Carl Doerksen is the Director of Corporate Development at Generational Equity.

© 2021 Generational Equity, LLC All Rights Reserved

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