The Coming Wave: How the Silver Tsunami Could Reshape M&A Deal Activity

For years, the business world has been preparing for the so-called “silver tsunami” — the wave of baby boomers exiting their privately-held businesses as they retire. These businesses, often small or medium-sized, make up a significant portion of the U.S. economy. Baby boomers own just over half of all businesses in the country, valued at an estimated $10 trillion. Yet, despite expectations that this wave would arrive when the oldest boomers reached retirement age 15 years ago, it has yet to materialize fully.

Dealmakers expected the silver tsunami 15 years ago, when the oldest boomers approached 65-years-old. But a range of factors has delayed the expected wave. Many baby boomers have held on to their businesses due to emotional attachment, the desire to keep the business within the family, or the lack of preparedness for a smooth exit. Additionally, economic instability and fluctuating markets have caused many owners to pause, waiting for more favorable conditions.

Fast forward to today, and some experts believe the silver tsunami is finally on the horizon while others are skeptical as to whether a tidal wave is coming at all.

During the SPS by Bain & Co. third quarter 2024 webinar, How to Prepare for the Next Wave of Great Deals, opinions varied. Some, like Ramsey W. Goodrich, managing partner at Carter, Morse & Goodrich, believe the tsunami is imminent. According to Goodrich, many baby boomer sellers have been waiting for the dust of economic crises to settle before they make their exit. He remains confident that a tidal wave of deals is about to hit, but he also cautioned that many of these deals might involve “B-rated” companies, with lower average deal premiums.

Steven Hunter, managing director at TM Capital, agreed that the silver tsunami is at hand, saying his company pitched as many deals in the month of July as it would in a typical quarter, albeit only a fraction of deals pitched in a similar period in 2021 and 2022. He noted that LPs want to see liquidity in portfolios older than seven years. “There’s finally a reckoning that’s coming.” But the beginning of it might consist of selling companies of lower quality first “to clear things out and make room for new things.”

Others, like Ted Kramer, CEO of HKW, are more skeptical. He believes we’ve barely scratched the surface of the wave and has seen only a small fraction of the expected deal volume, comparing it to “half a thumb” rather than a true tidal wave.

Still, the signs are there. One of the key indicators supporting the argument that the silver tsunami is approaching is the rise in deals involving private sellers. According to SPS data, from 2014 to 2023, the proportion of transactions with private company sellers sold to private equity buyers increased by 15%, while the total count of deals with private company sellers has increased significantly. As boomers age, the growing appetite for these types of transactions signals that the long-awaited transition is starting to take place.

As this generational shift continues, private equity firms are gearing up to seize the opportunity. Firms specializing in silver tsunami transactions, like AgeTech Capital, are emerging, while technology, particularly artificial intelligence, is playing an increasing role in identifying and evaluating potential targets.

The eventual arrival of the silver tsunami will have significant implications for M&A deal activity. It may start with a flood of small and medium-sized businesses coming to market, accompanied by a rush of buyers, advisors, and private equity firms eager to capitalize on the opportunity. Initially, premiums could dip as companies with lower quality are sold off first, but as competition heats up for high-quality assets, premiums could rise.

Whenever it fully arrives, the silver tsunami is poised to reshape the landscape of small and midscale mergers and acquisitions. It’s long overdue, but its impact will be undeniable when it hits.