M&A Optimism on the Upswing

By Generational Equity

12/10/2018

On an annual basis, the national law firm Dykema Gossett LLC surveys several thousand top business executives on their M&A outlook. These leaders run a variety of companies, with revenues ranging from below $1 million to those with over $1 billion.

It is a comprehensive study and gives us a good reflection of where these key executives see M&A heading. Here is a summary of their findings for 2018:

The M&A market is expected to get stronger, according to Dykema's 14th Annual M&A Outlook Survey. Nearly two-thirds, or 65 percent, of executives questioned said they believe mergers will strengthen in the next 12 months. Those execs with negative sentiment, dropped to 15 percent, Dykema said. Interestingly, only 39 percent of those surveyed in 2017 were positive about the M&A market.

You can see the four-year trend in this chart:

As you can see, after hovering in the upper 30% range for three years, respondents were very bullish in 2018. Not surprisingly there is a correlation between expected M&A activity and their views on the economy’s growth:

The chart above also shows how closely M&A expectations track buyers’ and sellers’ views of a recession. See how large the negative percentage was in 2008, in the height of the Great Recession, compared to this year.

Overcoming Obstacles to M&A Activity

Finally, most interestingly, the Dykema survey found three issues that were regarded as obstacles to closing transactions:

• Availability of quality targets
• Buyer competition
• Valuation

Of these, the one that I find most interesting is the “availability of quality targets”. We hear this from professional buyers that we deal with quite regularly. They point out that they simply can’t get enough inventory to look at right now given the record pace of M&A activity over the last several years.

What this study clearly shows is that the current seller’s market is anticipated to remain strong going into 2019. This bodes well for any business owner who is actively in the market now or is planning to launch at the beginning of the year.

But, what continues to surprise us is the number of quality companies that are not actively in the market because ownership is trying to “time” the sale to coincide with the top of the market. If that sounds like your strategy, be very careful.

History is filled with business owners who delayed going to market in 2007, the last year of the past seller’s market, only to get hammered by the Great Recession. And, even if they survived, they had to wait 7-8 more years than planned simply to get the business back to where it was.

Avoid Mistakes When Exiting Your Business

Fortunately for you, there are answers to the question of when to go to market, and you can find them at one of our complimentary exit planning conferences which we hold around the U.S. and Canada. In one day, your knowledge base regarding how and when to exit for the most profit will expand exponentially. Here are some links you can use to learn more:

• Tell Me About Generational Equity
• What Will I Learn at One of Your Conferences?
• Where Can I Go to Register for a Future Conference?
• What Makes Generational Equity So Unique?

If you would like to download a copy of the tremendous Dykema 2018 study, you can do so here:

• Dykema Mergers and Acquisitions Outlook Survey 2018/2019

Please do yourself, your family, and your financial legacy a favor and don’t let this seller’s market pass you by! It could be years before the next one arrives.

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

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