As we have examined in past posts on this site, we are currently in the midst of one of the strongest seller’s markets in decades. Recently S&P released a report examining the current state of affairs in the M&A industry. They are largely in agreement with other experts we have been following who consider this a prime time for business owners to look for buyers.
This is how S&P’s Global Market Intelligence described the current state of middle market M&A:
Middle-market M&A activity in the U.S. will remain frothy for at least another 12 months, driven by an abundance of equity looking for deals and accommodating credit markets, among other forces. The number of lenders targeting the middle-market segment has grown exponentially in recent years, helping create the current favorable lending environment for private equity funds.
The part I bolded above is really important to consider as you look at your exit plans. Nearly all deals closed in the middle market have some component of financing involved. This makes the availability of financing vital to successfully closing deals.
During the Great Recession in 2009 and 2010, lending for deals literally dried up, making it very tough to close any transactions. Now, as S&P described it, the sheer number of lenders who are active in the market are driving deals as never before.
Karen Davies, managing director and group head of Columbus, Ohio-based Huntington National Bank's private equity banking vertical, told S&P Global Market Intelligence that on the debt side, everyone is playing: Direct funds, debt funds and private equity funds that have established mezzanine funds.
"Every day there's a new lender showing up," she said. "There's no lack of competition." On good deals, she said, pricing is very aggressive. There's over a trillion dollars of dry powder that private equity firms have to put to work, and their LPs want them to get it put to work before a cycle," Davies explained. "So they're still paying top valuations to unload some of that dry powder and get it in sooner than later."
Again, I highlighted a segment in the paragraph above to make a key point: Valuations are driven not only by the quality of earnings of the target, but also by the amount of capital available chasing deals.
Right now buyers are more aggressive than ever – especially private equity firms – to close as many deals as possible before the next economic cycle turns the market. Logically, if buyers are aggressively looking for deals, then deals will be closed with terms far more favorable to sellers than buyers.
This is the nature of the M&A marketplace and why this timeframe, the next 12 months or so, will continue to be very important for business owners to examine in terms of their exit plans. As we have said before, there are two types of business owners:
The former group reacts to offers and often takes the first one that comes along, the second group is proactive, creative and disciplined, and sells when the time is right. Those are the folks who eventually get top dollar for their businesses.
Which group are you part of?
A key first step in preparing to answer that question is attending a Generational Equity exit planning conference. The investment of a few hours of your time will most likely produce tremendous results for you, as you will leave at the end of the day with more information than you can possibly imagine about your potential exit journey.
And our conferences are not sales pitches. If you don’t have a plan in place, you need to learn how to create one and we will teach you that. Don’t take my word for it, listen to what a few of our clients have said about the Generational Equity educational program:
So if you too want to be a “planner” and not a “reactor”, then you should make plans to attend one of our conferences near you. You need to take advantage of the current seller’s market and talk to buyers who are primed to talk to you. To learn more about our focus and the services we offer, please use the following links:
Carl Doerksen is the Director of Corporate Development at Generational Equity.
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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
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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
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
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We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
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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
Dear Chris and Andre, I just wanted to say thanks for all your help. Even though this process was not an easy one, it was comforting to know that I had a capable team standing beside me. You made me feel like we were almost your only client or at least the most important one. Thanks again, and I will recommend your service in the future.Shenille Engelhart, Owner – CLS Technology
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
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
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
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
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T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.Bryan D. Horn, Owner, Over Under Clothing
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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.
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
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.
I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
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