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M&A Activity is Surging Worldwide

By Generational Equity

surge of m&a activity

A few weeks ago, Dan Primack in one of his “Term Sheet” daily email updates provided this evidence to support the notion that mergers and acquisitions activity is on the rise:

“Global M&A: There was $1.8 trillion of worldwide M&A during the first half of 2014 (including $1.1 trillion in Q2), up 73% over the first half of 2013. Moreover, it was more volume than in any first half since 2007, while the 73% bump is thelargest such increase in 1998.”

Dan writes his daily blog postings for Fortune, and his column covers quite a bit of information relating to the capital markets in the U.S. and throughout the world. It is a great daily read full of key data like this and even more. I highly recommend it as I have been reading his work for years and have always found it helpful and informative.

Now getting back to his global M&A activity update: The data he presents is pretty amazing when you take a moment and consider it. The value of M&A deals closed in the first half of this year was 73% HIGHER than the same time frame in 2013. But what is even more astounding to me is that this increase is the largest in 16 years. What followed that sharp increase in 1998? Several more solid years of M&A deal expansion until the recession of 2001 hit. You can see this historically in the following chart:

Global Deal Data – Value and Volume – 1980-2012

So if the first half of 2014 is the largest increase in 16 years, and if historical cycles repeat themselves, the next 2-3 years will be a great time to be a seller!

The same trend is occurring in the U.S. middle-market as well:

“The first half of 2014 yielded more completed middle-market transactions worth more money than the same periods in both 2012 and 2013, according to Thomson Reuters. The first six months of 2014 produced 1,057 deals valued at $137.9 billion, compared with 1,023 deals valued at $120.6 billion in 2012 and 996 deals valued at $123.5 billion in 2013.”

That represents a 6% increase in deal volume and a 12% increase in deal value so far in 2014! So 2014 is shaping up to be quite a seller’s market.

The Market Timing Dilemma

Of course we have been reporting on this for quite some time. The problem is entrepreneurs, by nature, are a very optimistic lot with short memories. Now that the economy appears to be heating up (even though the 1st quarter GDP data was a bit dubious) and business is starting to really pick up for the first time in years, business owners are telling us that they want to wait and “time” the market.

The fact is if it takes 9-18 months (and in some cases even longer) to close a deal with an optimal buyer – if you wait three years to get started – you could literally miss the peak of the market.

Another idea to consider is this: It is far better to be in the market on the upside of the M&A cycle than on the downside. On the upside buyers are hungry, deals are scarce, and valuations are rising. You see quite the opposite on the downside of the cycle because sellers have swollen the market and buyers are not as active, which cause valuations to drop.

And let’s not forget the impact of the baby boomer business owner retirement wave that will be washing up on the M&A shores in the next 5-10 years. That will really affect the cycle in a way never seen before. Frankly, no one is quite sure what the impact will be.

So it is your call if you own a business and want to wait 3-5 years. If you are a sage market prognosticator (or read tea leaves for a living), you may be lucky and sell at the peak. If you are like the rest of us mere mortals though, odds are not good…

Why wait to start the exit planning process? You can always put it on hold at any time along the way. With a 73% increase in deal value in the first half of the year, it is clear that the M&A cycle is really gaining traction.

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

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