Merger and Acquisition Market Drivers in 2017

By Generational Equity


As you are probably well aware, 2017 is shaping up to be one of the strongest M&A markets in quite some time; some folks are even predicting a banner year. This is especially true of deals being closed for companies in the lower middle market (valued below $150 million by our definition). A number of factors are driving this:

  • Renewed economic confidence for buyers and sellers
  • Available capital
  • Getting deals done before future Fed interest rate increases makes the cost of borrowing go up
  • Strategic buyers consolidating market share
  • Equity firms expanding platform holdings
  • Solid revenue growth for lower middle market companies

We have examined most of these in past articles so I won’t bore you with repetition. The driver I want to focus on today is the last one: revenue growth of potential sellers in the lower middle market. As we all know, buyers fear one thing universally—risk. And certainly, given tepid economic growth since the conclusion of the Great Recession in 2011, buyers have been largely focused on the real growth prospects of targets they are focusing on.

Growth is driven by revenue, and revenue is driven by macro and micro forces. So, it is very interesting that in the last survey by the National Center for the Middle Market, 63% of surveyed middle market companies reported revenue growth in Q3 of 2016. And, just as importantly, 71% had increased confidence in the growth of the U.S. economy and a whopping 80% had confidence in the continued health and expansion of their local economies.

These surveys were conducted several months ago and I am sure that the confidence levels of middle market business owners and buyers have only improved since then. Overall, this is great news for both sellers and buyers!

Plan to Succeed in 2017

However, it is especially good news for business owners that already have exit plans in hand with a strategy to complete them in the near future. The statistics regarding the percentage of business owners without any exit plan are frankly startling:

  • More than 60 percent of small business owners planning to leave their business in the next 10 years don't have an exit strategy and aren't working on one.
  • 33 percent of small business owners intend to sell to a third party, with another 20 percent planning to sell to a partner or key employee.

Without a documented plan, how on earth can any business owner sell to a third party, partner, or key employee and expect to exit for maximum value? You simply can’t. The work we have done with our clients over the years has proven to be beneficial to them, not only creating a viable plan, but using it to find a buyer. In fact, we have successfully transferred more than $3 billion in wealth to our clients over the past decade or so. To learn more about us and to take advantage of all the positive trends impacting M&A in 2017, follow these links:

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

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