Trends Favor Another Record M&A Year in 2019

By Generational Equity


As we have indicated in a number of recent postings, 2018 turned out to be a continuation of one of the longest seller’s markets in memory. The convergence of several positive factors simultaneously drove 2018 to record levels.

So, what happens in 2019?

According to a recent article in Forbes, four factors indicate we could be trending for another record year for M&A activity in 2019:

  1. Liquidity is driving acquisition demand despite higher interest rates.
  2. M&A activity is expected to be healthy across all sectors.
  3. Tax reform has been a net positive for M&A activity so far.
  4. Demographics are favoring more M&A activity.

All of these are positive trends for sellers; however, longer term, the last one could have the biggest impact on business owners seeking an exit.

U.S. Demographics and M&A Activity

The number of Americans aged 65 and older grew from 35 million in 2000 to 49.2 million in 2016, according to the U.S. Census Bureau. According to the AARP, 10,000 baby boomers are turning 65 every single day, and this is expected to continue into the 2030s. This means that nearly seven baby boomers are turning 65 every minute.

We’ve previously discussed that 60% of the 15 million privately held businesses in the U.S. are owned by business owners born before 1964. If you are a baby boomer business owner, let that statistic sink in for a moment.

Sixty percent of 15 million is 9 million. Eventually all 9 million of these businesses will need to transition to new ownership as their baby boomer owners retire and move on. For the sake of our discussion, let’s assume that 50% of these 9 million either close the business, sell to their employees, or pass the company onto their children.

That leaves a staggering 4.5 million that will need to transition to new owners via an M&A event over the next 15+ years. Again, keeping the math easy, that is roughly 300,000 that will need to find buyers per year.

So yes, from a dealmaker’s and buyer’s perspective, demographics are favoring more M&A activity and will continue to do so for a long time. However, if you are a business owner, waiting too long to exit, especially beyond five years, could negatively impact the value of your company as the laws of supply and demand kick in: Too many sellers and not enough buyers!

This is something to seriously consider if you are delaying your exit right now because business is so good.

Getting Back to M&A in 2019

In the aforementioned Forbes article, the only negative trend on the horizon for 2019 is that trade wars may eventually negatively impact valuations. However, one not discussed in the article, but we feel should be fresh on everyone’s mind, is the recent volatility of the stock market.

Generally market gyrations (if long-lasting and not simply short-term corrections) have historically had an impact on M&A activity. However, it is still too early to discern the impact of the recent market declines on M&A. So far, from what we saw in the last quarter of 2018, it had no impact on our deal teams closing deals, as we had another record 4th quarter.

Based on Forbes’ info, you can expect 2019 to be a continuation of this record seller’s market (baring any major cataclysmic political or economic event). But, longer term, all seller’s markets eventually end. In this case, this could be followed by years of a buyer’s market as we see a virtual tsunami of baby boomer business owners retire over the next 15 years.

There are two types of business owners:

  1. Those that PLAN to sell
  2. Those that HAVE to sell

Which are you? If you are like most attendees at the outset of our exit planning conferences, you are probably in the latter group. After spending a few hours with us, you’re more likely to find yourself in the former group because of the wealth of knowledge you have learned. Have a listen to a few of our clients explain why planning is crucial for your exit strategy:

Each of these folks started their journey towards a successful exit by attending one of our highly educational exit planning conferences. Our complimentary conferences give business owners the knowledge and confidence to pursue an exit for optimal value. To learn how you can start your journey as well, use the following links:

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

© 2021 Generational Equity, LLC. All Rights Reserved.