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Dealmakers Expect 2018 M&A Market to Remain Strong

By Generational Equity

12/18/2017

As 2017 draws near to its close, we now enter the time of year when M&A analysts, dealmakers, and pundits begin to look at the approaching 12 months and provide their expectations for 2018. Their analysis should provide a bearing on when you should plan to exit your business.

Here’s the consensus: despite a lot of unknowns about what may happen in 2018, dealmakers and analysts are generally very bullish on next year, expecting the current seller’s market to continue gaining momentum.

The private equity industry is a good indicator of what trends will be impacting M&A activity next year. PE firms exist to do only one thing: invest in companies in order to help them grow for their limited partners. So demand from this group is a bell-ringer for what may occur in the larger M&A arena as well.

According to a recent article by a contributing editor in Mergers & Acquisitions magazine:

“Industry professionals far and wide are saying the same thing: this bull market can’t last forever. On the other hand, they aren’t pointing to any particular clouds on the horizon either. Sure, as I write this, everyone is wondering if Congress will pass a new tax law and the impact it might have on M&A, and there are ongoing concerns over deal pricing and the intensity of the competition for high quality opportunities. But private equity firms have more capital than ever and macro-economic conditions remain strong, pointing to another robust year for the industry.”

The last part of the prior paragraph is key. The amount of available capital committed to equity firms right now is at a record high. As we have been pointing out all year, this money will need to be eventually invested or it has to be returned to the PE firms limited partners. As the latter is not a welcome event (not a nice reputation for a PE firm to develop in the investor community), odds are good that all this money will be chasing far too few deals in the coming year, sustaining the seller’s environment we are now in.

Again, from Mergers & Acquisitions magazine:

“‘In the near term, we expect the hot market to continue,’ says Gretchen Perkins, a partner with Huron Capital. ‘Debt continues to be readily available to support acquisitions and there are plenty of deals in market and soon-to-be taken to market.’ In other words, there’s nothing pointing to an imminent slow down.”

Although our final numbers for 2017 are not in yet, in general our dealmakers agree with Ms. Perkins; there is really nothing on the horizon that should slow down buyer activity. This is what we are hearing all the time from professional buyers we regularly talk to, and based on the fact that in 2017 we will be closing a record number of deals, we expect demand to remain strong for our clients in the market going forward.

The key question every business owner should be asking themselves right now is this: What am I waiting for before I initiate my exit plans? Since it takes 9-14 months to generally close a deal with an optimal buyer, waiting too long could prove problematic. That may take you into 2019, causing you to miss what may be one of the strongest M&A years in memory.

Now we understand that exit timing is impacted not only by external market trends, it is also affected by your personal journey in life. As much as we would like to make the decision to exit your company a “scientific” exercise, we also recognize that the idea can be extremely emotional for many business owners, especially if the business has been in the family for multiple generations. The clan’s ongoing legacy and association with the company and community might be at stake.

However, setting all that aside, it really is important in ensuring your personal financial future (and that of your family’s) that you begin to plan for an exit event sooner rather than later. A great place to start this process is by attending a Generational Equity M&A conference. Investing a few hours of your time will greatly benefit you later, as the information you gather will allow you to outline your exit planning goals and time frame.

If you would like to learn more about Generational Equity and our educational conferences, please use the following links:

Remember: the timing of your exit strategy plays a significant role in determining the value of your business in the eyes of buyers. If you are considering the next chapter, make sure you act now to benefit from this seller’s market while it lasts.

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

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