Trump: what it means for M&A in 2017
Regardless of whether you are happy about it or not, Mr. Trump is our new president, at least for the next four years. So far, he seems to be keeping his promises. Two key promises were a reduction of the Corporate Tax Rate down to 15 percent and reducing regulation. Wall Street and Corporate America are salivating at this opportunity, as the Dow and Nasdaq both reached record highs. But what does this mean for Small Business Owners? Well, it likely means growth in your business.
So why should you sell and exit your business now? Aren’t you about to hit a new wave of growth? Well, just like the stock market, larger companies are taking this into account when they begin forecasting for the years to come. These new taxes and regulation will most likely take a year or more to become enacted and put into full effect. M&A is the fastest way to grow before these regulations are put into (or taken out of?) place. Businesses want to be in position to take full advantage of the new laws when enacted. This has potential buyers willing to pay even higher valuations.
A newly released study conducted by Citizens Bank confirms this. The study’s focus is heavily on the lower-middle market (5MM-25MM). Here are some statistics:
With concern of being undervalued falling off, more sellers are open to a sale than last year. In addition, more decision makers are expecting a financial crisis in the next three years. The analysis goes on to say:
Sellers recognize that the likelihood of being undervalued is low and their window of opportunity could be closing. This sense of opportunity will lead to increased activity throughout the market, as waiting may no longer prove to be advantageous… Sellers will look to capitalize on this window of opportunity before it closes and valuations eventually begin to taper off.
But what about buyers? Buyers are certainly seeing a lot of value in M&A and considering acquisitions for growth. In fact, 94% are either extremely or moderately confident that growth through acquisition is an appropriate strategy. Statistics suggesting buyer’s outlook of M&A:
More buyers are now open to looking for acquisition opportunities, with 1 in 3 believing M&A is the only way for growth. In addition, more businesses ranging from 25MM to 2B are looking specifically for bolt-on (as opposed to transformative/merger) acquisitions than the previous year. This is great news for businesses in the 5MM-25MM range!
This study also mentions preparedness and confidence. 63% feel their company is prepared for a sale while only 25% are confident they will be acquired. According to the study, most decision makers understand the value in bringing in third party support, such as M&A Advisors or Brokers. It mentions:
Approximately 90% of all decision makers — whether Buyers or Sellers — will be looking to engage a financial intermediary or third party as they pursue M&A activity in the year to come. Third parties will be essential in helping decision makers manage valuations, overcome regulatory concerns and close a deal in 2017.
If you feel you are not prepared for a sale, we often advise business owners how they can be better prepared for it when they are ready. Although we cannot predict what will happen over the next four years and beyond, we do know that right now M&A activity is up and outlook is good.