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
What is the status of the U.S. M&A market and what is the future outlook?
- 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.
- Prices and multiples are high for quality companies due to lack of quality businesses on the market.
- PEGS and large corporates are willing to look at smaller transactions, actually making venture and angel investments to bolster R&D and technology.
- Cross border deals are down 50% from last year.
- Key reasons are unresolved issues like Brexit and trade policies.
- U.S. economy has been surprisingly resilient as we are experiencing our longest ever economic expansion of 11 years (but global growth has slowed).
- FACTSET U.S. MergerMetrics for trailing twelve months: 13,569 deals closed, up over 7% year over year.
What is impacting valuations in today’s market?
- Low interest rates.
- Banks hungry for earning assets (loans) – funding up to 50% or more of transaction value.
- Plenty of equity capital.
- Lack of quality companies on the market for sale.
- Strong buyer demand for growth via acquisition.
- According to Warren Buffet’s letter to shareholders the last 3 years, he shared, “Given the army of optimistic purchasers, price seems almost irrelevant.”
Is there adequate funding available for acquisitions?
- Access to capital markets and credit remains robust.
- Strong/healthy markets for financing.
- >$2 trillion of private equity capital + corporate cash available.
Are Baby Boomers selling their companies, and if so, are they prepared to maximize value?
- The "Silver Tsunami" has begun in earnest as 10K baby boomers are turning 65 each day for at least the next decade.
- Boomers born before 1964 own 8-9 million privately-held businesses in the U.S.
- A significant percent are expected to change hands in the next 5-10 years.
- According to a 2016 Securian Financial Life Stage Study, 72% of business owners with revenues of <$20 million have NO EXIT PLAN.
- They typically do not have next-level management in place.
- Revenues and profits have stagnated.
- They have also not reinvested in systems and technology to keep up with the competition.
- Despite these factors, 54% intend to leave - exiting their business in 10 years or less.
What global economic factors are impacting M&A?
- Movement towards easier monetary policy by the world’s central banks reflect concern the trade war and other global issues are slowing economic momentum.
- It seems interest rates are too restrictive, given low inflation.
- 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.
- 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: firstname.lastname@example.org / (515) 777-7077.