Mergers And Acquisitions Activity Up By 30%

If you want to sell your business, your timing couldn’t be any better. According to the ACG (Association for Corporate Growth), M&A activity is up by 30% through May of this year. The ACG’s 14,000 members include professionals from private equity firms, corporations and lenders that invest in middle-market companies, as well as law, accounting, investment banking, and other firms that provide advisory services. It is an international organization dedicated to fostering sound corporate growth primarily via mergers and acquisitions.

Because their membership is largely skewed towards dealmakers focusing on the U.S. middle market, their information is a really good barometer of M&A activity. According to the ACG, although M&A activity has not reached pre-recession levels yet, valuations have largely recovered. Given the significant amount of capital chasing deals right now, this is not surprising. In fact, according to Pricewaterhouse Coopers, we are at the beginning stages of a seller’s market.

In addition, both strategic players and equity groups have moved from a survival mood prevalent in 2008 and 2009 into a much more aggressive expansion mindset. Both strategic players and platform companies funded by equity firms realize that the next year or two will provide them with unprecedented opportunities to expand market share, gain new products/services and position themselves for solid growth as the economy rebounds. This should only help expand the level of competition between buyers for deals through the end of 2011 and into 2012. Also, keep in mind that cap gains rates are scheduled to increase January 1, 2013. This should help drive mergers and acquisitions, as well, since delaying the sale of a middle-market company and closing after December 31, 2012, could increase your tax bite by as much as 60%.

The ACG has identified a number of trends that are also driving M&A activity:

  • Strategics and retrenchment: Over the past three years strategic players have essentially been hoarding cash. Now that the economy is showing tepid signs of recovery, stockholders are demanding that corporate boards do something with all this cash. Acquisitions are the best way to earn a solid return for shareholders.
  • The PE (private equity) roll-up is back: In a number of industries, the ACG is expecting to see the return of the expansion of PE platform companies. Having put most growth plans on hold in 2008, the post-recession opportunities will drive equity firms to return to the practice of scooping up add-ons to grow platforms (an add-on is a company that is acquired by an equity firm to be “added on” to an existing platform company).
  • The middle market will drive growth: History has proven over and over that giant deals don’t always make money for the acquiring company or firm. Hitting a home run with a billion-dollar, highly leveraged deal is a thing of the past. More and more professional acquirers are moving downstream and focusing on middle-market and micro middle-market deals. The risks are just so much smaller and the returns can be so much greater.

As we have discussed in the past, the ACG is not alone in its expectations for merger and acquisition activity in 2011 and beyond. If you are the owner of a middle-market company the current environment is going to present you with a great opportunity to sell your company. Since M&A recovery cycles usually run 3 to 4 years (in most normal recessionary recoveries) and given that this cycle began to recover in mid-2010, it is quite possible that the next 12 to 24 months will be optimal for you to find buyers for your business.

The pending baby boomer retirement bubble is another issue you need to consider as you contemplate the sale of your company (in addition to tax law changes in 2013). The facts are amazing. Just contemplate this: An estimated 9 million of America’s 15 million business owners were born in or before 1964. That means that more than half of the businesses owned in the U.S. will be changing hands over the next 5 to 10 years as these owners retire. Although it is a seller’s market right now, once these millions of businesses start hitting the market, it will quickly turn into a buyer’s market as supply will exceed demand, driving valuations down. Don’t wait for that to happen before you sell your company—get into the market sooner rather than later.

© 2011 Generational Equity, LLC All Rights Reserved

About Carl Doerksen

Carl Doerksen is the Director of Corporate Development at Generational Equity.


  1. [...] and acquisitions activity has been on the rise since 2010 and it kept its momentum through 2011. I have seen strong indications that this trend is set to continue into 2012, and we’ll see [...]

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