Too often we hear middle-market business owners state that because M&A activity has declined, now is not a good time to enter the market. However, in reality, the opposite is true.
Although M&A activity did experience two years of declines in 2008 and 2009, it actually began to rebound in the latter half of 2010 and most analysts expect this to continue in 2011 and beyond.
This expectation was borne out in a recent survey discussed in Corporate Financing Week (CFW). As CFW put it, “the rebound we saw in M&A activity in 2010 is set to gather further momentum in 2011.”
Their projections are supported by Freeman Consulting Services in their “Second Annual Survey of Corporate Decision-Makers.” The 150 industry professionals questioned expect to see a worldwide M&A uptick of 36% in 2011 following a 19% jump in activity year-on-year in 2010.
Goldman Sachs, in their recently published “Tactical Research Paper” on this topic, said that the 3rd quarter of 2010 served as an inflection point in M&A activity. Generational Equity concurs with this assessment, having seen a solid increase in deal closings in the 3rd and 4th quarters of 2010.
We believe that this “inflection” will only gain speed in 2011 for a number of reasons:
- Interest rates are at historic lows
- Both PE funds and Strategics are sitting on extensive amounts of dry powder that needs to be invested (dry powder = capital available for )
- Financing conditions continue to improve
- Stocks are under-valued by historic standards
- The dollar continues to be weak, making U.S. companies very attractive
- Due to the lingering effects of the global financial crisis, acquisitions will provide the best vehicle for corporate growth
For these reasons and many others, barring any unforeseen global political-economic crisis, 2011 should see a significant rebound in M&A activity in the U.S.
So what does this mean for you as an owner of a? Simply this: If you have been waiting on the sidelines the past two years until the recovers to sell your company, your wait is over.
As we have seen over and over, the best time to begin looking for buyers is at the beginning of an M&A cycle. This is when buyers are most active, and this will especially be the case during this recovery as both Strategics and PE firms have been sitting on the sidelines with significant capital for several years.
Also, keep in mind that it usually takes 9-18 months to find a buyer and close a deal. Starting the M&A consulting and advising process now will potentially place you in an optimal position during this next M&A cycle.
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