January 2019 Continues Record Pace for M&A Activity

By Generational Equity


Loyal readers of these Insights will know that 2018 closed as a record year for M&A activity. The good news is that despite a very tumultuous four weeks in January both economically (and certainly politically), the month delivered a record number of M&A transactions. In fact, a recent article in Bloomberg News reported:

Dealmakers made a comeback in January, logging $275 billion of mergers and acquisitions globally to mark the best start to a year in almost two decades.

“M&A came back even though the markets felt choppy, and that shows how confident CEOs are,” said Susie Scher, co-head of the global financing group at Goldman Sachs Group Inc.

The surge was led by North American deals, with $187 billion of transactions announced during the month — up 40 percent from 2018 — according to data compiled by Bloomberg. Asia was next with $47 billion, an increase of about 10 percent from a year ago, while in Europe M&A volumes fell about 24 percent to $30.5 billion, the data show.

As we have discussed before, this is great news for dealmakers, but even greater news if you are considering a full or partial exit from your business in 2019. In most years, there tends to be a lull in transactions during the first month of every year as dealmakers recover from a whirlwind year-end and buyers begin digesting deals closed during the fourth quarter frenzy.

Not so this year!

Positive Signs for M&A in 2019

There are many positive factors driving activity now. This includes the convergence of cash on balance sheets, economic growth (and confidence), relatively low interest rates (with the Fed delaying increases for a bit) and the aging of baby boomer business owners. These are among the factors that are driving activity as never before, leading many to predict another record year for deal making in 2019.

Again, from Bloomberg News:

On top of easily available financing — for now — said Scher, some companies also have extra cash on their balance sheets after U.S. tax cuts last year. While some of the funds have already been pledged for buybacks, there’s still plenty to deploy on potential M&A.

As we have said before, this is a great time to sell for prepared business owners. Many of you are most likely getting calls regularly now from buyers who are fishing for deals – because the problem that buyers are facing is a lack of good target sellers to negotiate with. 

Keep in mind that, from a buyer’s standpoint, it takes 3-6 months to close most deals (depending usually on the length of due diligence required). To get to that point with a buyer, you need to have a buyer ready business and a solid understanding of the current Business Enterprise Value of your company.

How do you create a buyer ready business? By taking strategic steps in the 6-9 months before exiting to do the following:

  • Reduce owner dependence (let your managers make key decisions)
  • Reduce customer concentration (balance your account base so no single client is over 20% of your revenue)
  • Get your financials in order

Yes, businesses are acquired all the time that have these weaknesses. But these businesses do not command a premium and often are sold at a significant discount. This is because the business owner went the cheap route and did not hire an M&A advisory firm to help them prepare for sale and guide them through the process.

The Generational Equity Advantage

The first step in the Generational Equity journey is a full evaluation of the company to determine its current value and develop strategies to grow and enhance the value (and sale-ability) of the business.

Our clients find this to be of significant benefit because few have any idea of the current value of their companies, and even fewer know how to identify ways to grow their business value to take advantage of the current exploding M&A market.

Before you can take the first step toward a sale, you need the knowledge. You can gain that knowledge by attending a Generational Equity exit planning conference. These are held throughout North America and are entirely complimentary. All you have to do is invest a few hours and open your mind to the fact that there are two kinds of business owners:

  • Those that PLAN to EXIT
  • Those that HAVE to EXIT

After attending a Generational Equity conference, you will be among the former group and not driven by external circumstances like the latter one.  

Use the following links to learn more:

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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