Best middle-market deal flow conditions for sellers since mid-2000s according to expert
“The primary drivers of middle-market deal flow, company and industry performance, capital availability, macro-economic conditions, and private equity values are more favourable to the private business seller than at any time since the mid-2000s.” That is the view of Andy Greenberg, CEO of private equity data resource specialist GF Data, an organisation well positioned to make a judgment, based on purely data-driven analysis.
That today’s M&A market is strongly balanced in the seller’s favour is something we have touched on many times before, and with good reason: in 2013 Benchmark International advised on more completed transactions than any other year beforehand, witnessing record average deal values and multiples achieved. All signs point to increased deal volume in 2014, with more transactions completed and with greater average multiples achieved in H1 2014 than H1 2013.
So why should business owners consider selling now?
Here are some reasons why today’s market conditions may be perfect for a business owner looking to exit:
More money available for acquisitions than ever before. With the economy now fairly stable following several years of uncertainly, acquirers are now flooding back to the market armed with sizeable reserves of unspent cash. Couple with this is the high level of pressure being placed on corporate organisations and private equity funds to invest cash in M&A to drive growth and returns.
With so many buyers chasing so few opportunities, it is inevitable that deal values will rise above normal levels as demand outstrips supply significantly.
Timing is key. Like all other industries, M&A is cyclical with each lifecycle typically running over seven years. The last M&A peak was witnessed in 2007; however, with the global economic downturn causing an extended decline, the current lifecycle has also been extended with transaction activity estimated to peak in 2015.
This is good news for business owners currently contemplating selling. As the company sale process typically lasts between six to eighteen months from instruction to completion, like any great long distance runner will understand, now could be the perfect time to start the sprint to the finish.
Today is a sellers market. Tomorrow may not be. Although market conditions are currently suited to sellers, it seems that very few business owners have realised this – which plays directly into the hands of those that have. With baby boomer generation business owners due to retire en-masse over the coming years, the current market conditions will not remain for long, ultimately shifting the power toward the buyers.