M&A Transactions Expected to “Accelerate”

By Generational Equity


Recently, Ernst and Young (EY) surveyed more than 2,500 executives from 43 countries, including more than 500 executives in the U.S., to determine their attitudes and future goals regarding their acquisitions plans. Not surprisingly, given that we are in one of the strongest seller’s markets in ages, and demand for targets is high, these executives plan on being quite active over the next 12 months or so:

Encouraged by recent policy changes and positive economic growth, 86 percent of executives surveyed expect the global M&A market to improve over the next 12 months, according to Ernst & Young LLP’s twice-annual Global Capital Confidence Barometer. In the U.S., 72 percent expect the domestic M&A market to improve, a considerable uptick from 25 percent of respondents six months ago.

Based on research we have done and on conversations we have regularly with buyers, we are in total agreement with the results of this survey. In fact, we think business buyers might even be more active than suggested by the results. According the EY data:

The polled executives are feeling good about the economy, with 96 percent in the U.S. indicating that economic conditions are stable or improving. They’re also optimistic about deal making, with 54 percent of the U.S. executives surveyed expecting to actively pursue M&A, a climb of 12 percent since October 2017. Also, 61 percent expect their pipeline of potential M&A deals in the next 12 months to grow, which is three times higher than the percentage reported one year ago.

The last sentence that I highlighted is fascinating to me. What the survey suggests is that these executives expect to have more acquisition targets in their funnel over the next 12 months – three times more than one year ago. The only way this will happen is if business owners realize the tremendous opportunity before them and prepare their companies (and themselves) for an acquisition of some type.

We ask business owners these questions every day:

  • Are you READY? Do you have an exit plan in place?
  • What is your exit timing?
  • What are you doing right now to build a buyer ready business?
  • What happens if a buyer knocks on your door?

Sadly, too few are taking advantage of this seller’s market cycle and will most likely have to wait until the next seller’s market in 7-10 years. Don’t fall into that trap.

How does this affect your company valuation?

Keep this in mind: Far too many business owners assume that buyers are only after their balance sheets, specifically the value of their equipment. Nothing could be further from the truth. Today’s buyers are looking for intangible assets and according to the EY study, the number one item they are searching for is talented employees:

Of the U.S. executives in the EY survey, 58 percent say that acquiring talent is the top strategic driver for acquisitions. Another recent survey—by SunTrust Banks Inc. of small- and middle-market businesses– also found that acquiring skilled talent is a major driver for M&A.

Think about that: You may be radically undervaluing your business by not taking stock of the true value of your company – your associates.

Bill Casey, Vice Chair of Transaction Advisory services for EY Americas states, “More than half of executives say they are struggling to identify and hire people with the right skills.” Casey adds, “The fact is that maybe a shorter path might be to acquire a business to get access to a talent pool. In addition to having a job market that’s getting tighter, we also have a skills gap.”

The reality is you may be sitting on a gold mine in the form of your employee base and not even be aware that to some buyers, it might be worth a premium over your book value to acquire the future potential of your company.

So all of this is very good news for business owners prepared to take advantage of the seller’s market and buyer activity over the next 12 months.

Are you prepared for this acceleration in M&A transactions?

If you are already a Generational Equity client reading this post, then you have made the most important first step in your preparation: Hiring the most experienced M&A advisory firm in the lower middle market.  

However, if you are a business owner who has not hired us, has no plan in place and is not prepared to reap the continued seller’s market, then you need to contact us to discuss your goals and objectives and to find out if our services are a good match for you. Please reach out to us at 972-232-1121, or provide us with your contact information and we will be in touch.

Additionally, we regularly hold complimentary conferences throughout North America that help business owners ready themselves for acquisition – find a conference near you. And if you would like to hear from some of our clients who have benefited from our executive conference, follow these links:

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

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