As Dr. John Binkley and many other prominent voices in mergers and acquisitions have identified in depth, we are currently in one of the strongest seller’s markets in decades.
This is something Dr. Binkley and everyone at Generational Equity is keen to ensure that clients are aware of, as these are the phases when buyers are most active and more willing to spend a premium on companies. Being able to time your exit during a seller’s market gives business owners a great opportunity to achieve maximum value.
But, just how exciting is global M&A activity right now? Well, according to the latest numbers from Bloomberg, it’s reaching unprecedented levels.
Already in the first half of 2018, $2.5 trillion worth of transactions have been announced worldwide, which is a 61% increase compared to the first half of 2017 and the highest on record for this time of year.
To put this in context, the current value of activity has already exceeded the entirety of 2009’s annual deal values. In addition, this is the sixth quarter to surpass $1 trillion in announced deals since the start of 2015.
This astonishing number is well on course to exceed 2007’s record of $4.1 trillion by the end of the year. And, while 50 percent of M&A transactions were accounted for by “mega deals” (deals greater than $5 billion), there have been notably valuable transactions being completed at every level, including Generational Equity’s focus: the middle market.
In fact, Dr. John Binkley is very pleased that Generational Equity is also on course to achieve a record-breaking year for deals completed and the value of wealth transferred to clients.
So, we know that global M&A activity is reaching record highs in 2018, and those with a professionally prepared exit strategy are finding great opportunities to pursue the maximum value for their business. But what is driving this landscape?
Here, Dr. Binkley focuses on a few notable industries that are enjoying record levels of transactions, factors that are making this an incredible seller’s market, and a few notes of caution on why business owners contemplating exit shouldn’t expect this market to last forever.
Industries Thriving from Record-Breaking M&A Activity
One of the great benefits of the current seller’s market in M&A is that it’s positively impacting virtually all industries right now.
For Dr. John Binkley, the growing familiarity of cross-industry acquisitions plays a big role in this. Buyers are looking beyond their industry to find companies that will open access to new markets, bring improved technology, and enhance their workforce.
However, some industries have experienced exceptionally high levels of deal making in 2018 thus far, and Dr. Binkley wanted to look at these in greater depth. Not only will this encourage business owners in these sectors on the opportunities open to them, but it will also outline factors that are impacting M&A activity across all industries.
The media industry has seen $140 billion across 950 transactions so far in 2018, a 43 percent increase in deal volume compared to this time last year. And, before you ask, this number excludes the Time Warner and Twenty-First Century Fox mega deals.
According to Media Post, many of these deals have typified two key trends in M&A that Dr. John Binkley has noted in the past – mature companies driving for future growth and the capacity of private equity firms to enable large-scale acquisitions.
M&A activity in the consumer goods industry reached a 15-year high last year, which has continued into 2018. 2017 represented a 45 percent rise against the number of transactions completed in 2016, but even more notably, a 190 percent increase in deal value.
These transactions are presenting a wide variety of M&A strategies, but a prominent driving force is the technological sophistication of smaller and middle market businesses compared to established yet traditional brands. This digital edge gives sellers who have focused on technology and innovation a definitive advantage in achieving maximum value on exit.
Deal making in healthcare, particularly among pharmaceutical companies, has boomed in the first half of 2018, resulting in $100 billion spent in mergers and acquisitions, according to BioSpace. And, with notable names like Johnson & Johnson and Allergan expected to make further moves, this could be an emphatic year for the healthcare industry.
BioSpace points to changes in the U.S. tax code as the impetus for this M&A activity, another factor that Dr. John Binkley and Generational Equity have highlighted as a driving force in the current seller’s market. With the corporate tax rate around 20 percent, it is easier for Big Pharma companies to repatriate overseas holdings to finance transactions.
Reasons Why Now is the Strongest M&A Seller’s Markets in Years
Generational Equity has regularly identified key dynamics that make this one of the strongest seller’s markets in decades, and deeper investigation into several industries’ approaches to M&A this year only proves to confirm the influence of these factors.
As previously mentioned, the growth in both the number of private equity firms and the funding available to them has been pivotal to deal making, particularly in the middle market. Dr. Binkley noted in a recent blog that $1.7 trillion worth of “dry powder” was available at the end of 2017, according to the Global Private Equity Report 2018.
Tax law changes have also had a definitive influence – the fall of the corporate tax rate and greater opportunity to repatriate funds has really set the stage for M&A activity. Not only are more funds available for buyers to invest in acquisitions, but lower tax rates also make companies considerably more attractive to buyers. Plus, the positive economic climate has continued to make debt financing for M&A activity readily available.
If you’d like to learn more on why the current seller’s market in M&A is reaching record levels, Dr. John Binkley’s previous blog post identifies seven signs of a strong M&A market. With the incredible level of deal value already achieved in 2018, this information could help you define when the market is primed for selling a business.
Capitalize on M&A Activity While It Lasts…
However, while it’s right to celebrate the undoubted strength of the current seller’s market, Dr. Binkley notes that you shouldn’t expect this to last forever.
Indeed, the article by Bloomberg includes several notes of caution for those contemplating their exit plans. Because, in truth, nobody knows exactly when this seller’s market will end, but unfortunately it will one day.
These warning signs include:
- A flattening yield curve that could invert, causing long-term interest rates to fall below short-term interest rates and indicates a recession
- The number of announced deals has dropped 10% compared to 2017, indicating that while deals are more valuable, they could be reducing by quantity overall
- Antitrust laws
- Unpredictability in the stock market, especially as a result of trade war with China and other geopolitical tensions between the U.S. and other nations
So, a final word of warning from Dr. John Binkley – seller’s markets are great times for the M&A industry and they’re when business owners that are looking to sell are most likely to achieve maximum value – but this current climate will not continue indefinitely.
If you’re ready to take this step, now is the time to get prepared. While 2018 could go down in history as the strongest year for M&A since records began, that won’t mean much to you if you miss this window of opportunity.
If you’d like to learn more, Generational Equity’s M&A insights are regularly updated and filled with information that could help to secure your business legacy.