2019 M&A Mid-Year Outlook

Excerpts from Gilbert & Cook's "Mid-Year Outlook - Plans, Priorities & Expectations in the Public & Private Marketplace"
July 18, 2019 - Des Moines, Iowa
By Steve Jacobs

1. What is the status of the U.S. M&A market and what is the future outlook?

   1. Competitive environment and it is definitely a seller’s market, but buyers are doing more strenuous due diligence to make sure of what they acquire.
   2. Prices and multiples are high for quality companies due to lack of quality businesses on the market.
   3. PEGS and large corporates are willing to look at smaller transactions, actually making venture and angel investments to bolster R&D and technology.
   4. Cross border deals are down 50% from last year.
   5. Key reasons are unresolved issues like Brexit and trade policies.
   6. U.S. economy has been surprisingly resilient as we are experiencing our longest ever economic expansion of 11 years (but global growth has slowed).
   7. FACTSET U.S. MergerMetrics for trailing twelve months: 13,569 deals closed, up over 7% year over year.

2. What is impacting valuations in today’s market?

   1. Low interest rates.
   2. Banks hungry for earning assets (loans) – funding up to 50% or more of transaction value.
   3. Plenty of equity capital.
   4. Lack of quality companies on the market for sale.
   5. Strong buyer demand for growth via acquisition.
   6. According to Warren Buffet’s letter to shareholders the last 3 years, he shared, “Given the army of optimistic purchasers, price seems almost irrelevant.”

3. Is there adequate funding available for acquisitions?

   1. Access to capital markets and credit remains robust.
   2. Strong/healthy markets for financing.
   3. >$2 trillion of private equity capital + corporate cash available.

4. Are Baby Boomers selling their companies, and if so, are they prepared to maximize value?

   1. The "Silver Tsunami" has begun in earnest as 10K baby boomers are turning 65 each day for at least the next decade.
   2. Boomers born before 1964 own 8-9 million privately-held businesses in the U.S.
   3. A significant percent are expected to change hands in the next 5-10 years.
   4. According to a 2016 Securian Financial Life Stage Study, 72% of business owners with revenues of <$20 million have NO EXIT PLAN.
   5. They typically do not have next-level management in place.
   6. Revenues and profits have stagnated.
   7. They have also not reinvested in systems and technology to keep up with the competition.
   8. Despite these factors, 54% intend to leave - exiting their business in 10 years or less.

5. What global economic factors are impacting M&A?

   1. Movement towards easier monetary policy by the world’s central banks reflect concern the trade war and other global issues are slowing economic momentum.
   2. It seems interest rates are too restrictive, given low inflation.
   3. Not too many signs of an impending recession, but there will be an economic slowdown at some point. A recent presentation by a global economist expects things to actually get better from here on out, with the next recession likely to occur as late as 2021.
   4. Key issues are navigating the global uncertainty around Brexit, Asian supply chain issues, and geopolitical matters throughout the world.

Contact Steve Jacobs if you would like to discuss the M&A market further: steve@bccadvisers.com / (515) 777-7077.