Merger and Acquisition Trends in 2016

By Generational Equity


Recently Mergers & Acquisitions magazine met with Peter Lehrman, CEO of Axial, a network connecting capital providers/intermediaries with businesses seeking growth and investment. Because of his company’s role in the capital creation process, Lehrman’s perspective is unique in the M&A arena. Here are some key excerpts from his interview:

“I think private equity firms will be substantially more active this yearthan last year, unless markets continue to go off a cliff, and then they’ll continue to wait and pause. Unless the markets are cratering all year long, I think the big pause that a lot of private equity firms took last year will end. A lot of them have a lot of capital that they raised last year or in 2014, and if the broad equity markets are down 15 percent to 20 percent this year, it will allow them to become active again, because they will be able to price and win deals at valuations that they are more comfortable with.”

As for activity, Generational Equity concurs with Peter—so far this year we have seen no lessening in demand or interest from private equity firms. In fact, far from it. Many are moving fast to acquire businesses before the Fed raises interest rates later this year. Even if the Fed does not act again in 2016, the idea that they might is highly motivating to equity firms that finance most of their transactions.

Mr. Lehrman also discussed an industry he expects to see solid growth in transactional demand:

“There’s obviously an elevated consciousness around global terrorism, but I think the political outcome this year is actually less important regarding that. Regardless of whether a Republican or a Democrat wins, I think the budgets, and C-level priority, for government agencies and companies around cybersecurity, data security, national security—those are all rising in terms of their importance … Regardless of the political outcome, I think there will be significant demand for businesses that provide products and services that help governments or corporations that manage security risks.”

He makes an excellent point: Unfortunately our world has become a less secure place over the past few decades. This is creating opportunities for companies that offer services designed to overcome these fears. If you own a company that is in the security/safety space, your business could be in demand right now.

Finally he also examined an ongoing trend that Generational Equity has been witnessing as well, which accelerated in 2015:

“There’s a constant and secular trend where more and more people are setting up their own boutique investment banks and private equity firms, where they’re doing deals on a deal-by-deal basis and they’re not raising funds. That’s been a trend for one or two years now, and I think that trend is going to continue to gather steam. The number of professionals who leave a blue chip financial institution and set up their own two-person, five-person operation, and become customers of Axial, that number is just continuing to become a larger and larger percentage of the customers that we serve.”

This is an interesting phenomenon that we have experienced, especially with family offices. Instead of pooling capital via limited partners into a traditional fund, more and more groups/individuals/families are making direct investments in lower middle-market companies because it allows them greater control and flexibility. However, because of the confidential nature of these operations, they don’t widely publicize their goals. We are aware of them because they come to us and tell us exactly who they are, what they are looking for, and their strategic vision regarding acquisitions. In fact, we have more than 34,000 buyers registered in our proprietary buyer database alone.

These are just a few of the trends Lehrman is seeing from his unique perspective with Axial. The reality is we are in the midst of one of the strongest seller’s markets in decades. Because of this we are encouraging every business owner to thoughtfully examine their exit strategies and plans. Since very few have a documented plan in place, attending an educational Generational Equity seminar is a great place to start the process.

Special thanks to Peter Lehrman and his thought leadership on current M&A trends!

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

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