Analysts Predict Increase in Merger and Acquisition Activity Following Republican Sweep Last November

By Generational Equity

03/06/2017

Recently one of the leading publications in our industry, Mergers & Acquisitions magazine, interviewed several leading M&A experts regarding their expectations for deal making in 2017 given the impact of a new Congress and president. As you would expect, dealmakers, strategic buyers, and equity firms are all fairly bullish on the impact that a Republican Congress and President will have on the economy in general and M&A activity specifically. Here are a few of the excerpts from this interview:

There’s going to be “a pickup in M&A,” says Jim Freedman, chairman, Intrepid Investment Bankers LLC, reflecting on the Republican Party’s winning the White House and both houses of Congress in the U.S. election…

“The general consensus is that there will be a reduction in taxes. There will be a reduction in regulation. There will be more of a pro-business philosophy. I think those are all good things for the M&A industry. I’m pretty bullish on what this means for the M&A business.”

“If people conclude, in the next several months, that the transition will foster some policies that will cause some economic activity, then we may see more M&A activity,” says Geoffrey Rehnert, co-CEO, Audax Group.

“My prediction is that it is going to accelerate M&A activity,” says David Bonrouhi, managing director, Calabasas Capital, referring to the election outcome. “Business owners are going to want to get deals done before any new initiatives get passed and slow things down.”

Dealmakers that I speak to with our firm, the Generational Group, echo these sentiments. You have to keep in mind that two things buyers of all types have to factor into their ROI (return on investment) valuation equations are risk and unknowns.

The first can be quantified somewhat when they create their discounted cash flow (DCF) models. For those of you unfamiliar with a DCF calculation, essentially your business starts with a risk-free return percentage and a variety of risk factors are considered that may influence a discounted rate on a potential sale. The higher the risk associated with a company, the greater the discount rate and the lower the valuation.

The Unknown Unknowns

The second issue, unknowns, are nearly impossible to quantify via the DCF model, but can have a much greater impact on the psyche of buyers, and even sellers in many cases, than risk. Often the fear of unknowns will kill deals even more than risk factors will.

And certainly in 2016 we faced a bevy of unknowns, which were made even more problematic by one of the most contentious election cycles in recent memory. For many buyers and sellers, the wide divergence in the possible outcomes, even until the day of the election, caused pause and delay in transactions.

With all of that behind us, 2017 should provide a tremendous opportunity for both sellers and buyers to connect and close win-win transactions. I reprise what Mr. Freedman said earlier: “I’m pretty bullish on what this means for the M&A business.”

We concur. Now is the time for business owners who have been delaying their exits, many of them since the market crash in 2009, to move forward. As we all know, there are two kinds of owners:

1. Those that plan to sell
2. Those that have to sell

Where you fall in relation to these two options is dependent on your ability to discern when and how to exit for maximum value. The Generational Group and its team of experienced M&A professionals can help you do just that. We are one of the leading lower middle-market investment banking firms, and attending one of our highly educational executive exit planning conferences will provide you with ample opportunity to begin your process.

Even if you believe your exit is five years out or longer, the reality is you need to start building a buyer-ready business today. How do you do that? You learn to think like a buyer and discover what adds value to a business. Attending one of our complimentary, no-obligation conferences will help you do just that.

To find out how to attend, please call us at 972-232-1121 and ask to speak to one of our Senior Business Advisors, or visit our website and provide us with your contact information and we will be in touch.

And let’s all hope that 2017 brings a high level of clarity and stability to our entire country and economy.

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

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