As we have indicated in a number of recent postings, 2018 turned out to be a continuation of one of the longest seller’s markets in memory. The convergence of several positive factors simultaneously drove 2018 to record levels.
So, what happens in 2019?
According to a recent article in Forbes, four factors indicate we could be trending for another record year for M&A activity in 2019:
All of these are positive trends for sellers; however, longer term, the last one could have the biggest impact on business owners seeking an exit.
The number of Americans aged 65 and older grew from 35 million in 2000 to 49.2 million in 2016, according to the U.S. Census Bureau. According to the AARP, 10,000 baby boomers are turning 65 every single day, and this is expected to continue into the 2030s. This means that nearly seven baby boomers are turning 65 every minute.
We’ve previously discussed that 60% of the 15 million privately held businesses in the U.S. are owned by business owners born before 1964. If you are a baby boomer business owner, let that statistic sink in for a moment.
Sixty percent of 15 million is 9 million. Eventually all 9 million of these businesses will need to transition to new ownership as their baby boomer owners retire and move on. For the sake of our discussion, let’s assume that 50% of these 9 million either close the business, sell to their employees, or pass the company onto their children.
That leaves a staggering 4.5 million that will need to transition to new owners via an M&A event over the next 15+ years. Again, keeping the math easy, that is roughly 300,000 that will need to find buyers per year.
So yes, from a dealmaker’s and buyer’s perspective, demographics are favoring more M&A activity and will continue to do so for a long time. However, if you are a business owner, waiting too long to exit, especially beyond five years, could negatively impact the value of your company as the laws of supply and demand kick in: Too many sellers and not enough buyers!
This is something to seriously consider if you are delaying your exit right now because business is so good.
In the aforementioned Forbes article, the only negative trend on the horizon for 2019 is that trade wars may eventually negatively impact valuations. However, one not discussed in the article, but we feel should be fresh on everyone’s mind, is the recent volatility of the stock market.
Generally market gyrations (if long-lasting and not simply short-term corrections) have historically had an impact on M&A activity. However, it is still too early to discern the impact of the recent market declines on M&A. So far, from what we saw in the last quarter of 2018, it had no impact on our deal teams closing deals, as we had another record 4th quarter.
Based on Forbes’ info, you can expect 2019 to be a continuation of this record seller’s market (baring any major cataclysmic political or economic event). But, longer term, all seller’s markets eventually end. In this case, this could be followed by years of a buyer’s market as we see a virtual tsunami of baby boomer business owners retire over the next 15 years.
There are two types of business owners:
Which are you? If you are like most attendees at the outset of our exit planning conferences, you are probably in the latter group. After spending a few hours with us, you’re more likely to find yourself in the former group because of the wealth of knowledge you have learned. Have a listen to a few of our clients explain why planning is crucial for your exit strategy:
Each of these folks started their journey towards a successful exit by attending one of our highly educational exit planning conferences. Our complimentary conferences give business owners the knowledge and confidence to pursue an exit for optimal value. To learn how you can start your journey as well, use the following links:
By Carl Doerksen, Director of Corporate Development at Generational Equity.
© 2019 Generational Equity, LLC. All Rights Reserved.
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
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
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
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
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 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
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
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
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
Generational Equity’s assistance was invaluable in compiling and marketing our business.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
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
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
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.
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
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 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.
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
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
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
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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