U.S. M&A Activity Remains Strong

M&A activity has remained strong in 2018. According to PitchBook, in the first half of the year U.S. private equity investors completed 2,247 deals that totaled a combined 263.9B in value, marking a 2% increase in volume and a 6% decrease in value compared to 1H 2017. The median buyout size is up 31% compared to last year, suggesting that the decrease in overall deal value reflects a lack of mega deals rather than a softening of valuations.

Overall, global M&A deal value rose by 64% compared to the first half of 2017, according to data from Thomson Reuters, although volume declined by roughly 10%. In the U.S., total deal value was up 79% but volume declined by 14%. This is largely due to a big increase in corporate acquisitions valued at $5B or higher, as private equity transactions only represented 8-10% of global M&A.

A few key trends suggest this white hot deal market is sustainable. First, corporations and private equity firms continue to sit on incredible levels of cash - private equity alone had amassed $1.8 trillion of dry powder by early 2018, according to a McKinsey report from earlier this year. Private equity firms also set new fundraising records in 2017, and although fundraising is down considerably thus far in 2018 there is no reason to believe PE firms will do anything but continue to invest at their current pace.

Finally, baby boomers dominate the ranks of business owners. Numerous sources estimate that baby boomers own between 59% and 67% of privately held companies in the United States, suggesting that several million companies will change ownership in the next 10-15 years. Further, a recent survey on business owner demographics reported that 32% of small business owners plan to sell their business in the next two years. 

When you pair an abundance of sellers with cash-rich, deal-hungry investors, deals are bound to happen. 

How to Find the Most Logical Buyer for Your Business - Part 4

To conclude this series, I’d like to highlight three things every owner should do before attempting to sell – have your business valued; implement a de-risking initiative; and, create a life after ownership plan. Checking these boxes will not only establish a solid foundation for your exit plan but will also enable you to more clearly envision the most logical buyer and position your business accordingly.

Valuation

First, it’s imperative to understand the value of your business. Many owners think they know what their business is worth, but most have never had it formally appraised. Instead, they rely on gossip from friends and colleagues and articles touting rules of thumb or describing publicly announced transactions. These source typically provide incomplete information that in the best cases is not applicable to the reader and risks being completely false.

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How to Find the Most Logical Buyer for Your Business - Part 3

Part 2 of this series explored the numerous financial and non-financial objectives an owner may have when pursuing the sale of their business. Today’s edition will discuss the possible conflict between objectives and help an owner determine what to do if the most logical buyer for one goal is in conflict with another.

Most business owners are pro-small business, and if they’re being honest with themselves will say that they’d love to see their legacy carried forward by another individual who can grow the business and reap the same rewards as the seller has throughout his or her career. In today’s environment, however, it’s rare that an individual is able to make the best financial offer, and the valuation gap between individuals and corporations or private equity investors can be massive.

That doesn’t mean that selling to an individual precludes the owner from netting enough from the sale to achieve whatever financial goals he has set forth. Making this determination requires a strong evaluation of the business to determine the valuation an independent buyer would place on the business today, and a subsequent analysis of the owner’s personal balance sheet and ability to achieve certain goals upon a liquidity event. It’s entirely possible that this lower valuation still enables the seller to achieve full financial freedom, and in such a case it may not matter that the buyer isn’t paying the highest price. 

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How to Find the Most Logical Buyer for Your Business - Part 2

In our first article, we provided an introduction to our framework for identifying the most logical buyer along with a high-level overview of the general categories of buyers of small and middle market companies. Today, we’ll take a deeper dive into the profiles of individual buyers, small business owners, middle market private equity investors (both traditional funds and search funds), and strategic buyers.

Individuals

When individuals buy businesses, they are effectively buying themselves a job. The majority seek a business with a retiring owner whose role in daily operations they can quickly replace.

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How to Find the Most Logical Buyer for Your Business - Part 1

This is the first in a multi-part series on identifying the most logical buyer for a business.

Selling a business is not just about finding anyone to buy it – it’s about finding the right buyer, the most logical buyer. Identifying a logical buyer requires defining the type of person or entity to whom you’d most like to sell, which in turn involves a deep dive into the owner’s goals, both personally and professionally, for the outcome of the transaction.

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Is 2016 The Year You Sell Your Business?

Many are calling it the greatest generational transfer of wealth in history. In the United States, approximately 66% of all privately held companies are owned by baby boomers. As this population begins to transition from workforce to retirement, boomer business owners seek to transition their businesses to a new owner.

According to a recent survey by the Exit Planning Institute, 76% of Boomer business owners plan to transition their businesses over the next ten years, representing 4,500,000 businesses and over $10 trillion in wealth. For most business owners, this represents not only the largest financial transaction of their lives but also determines if and how they are able to retire, as the average owner has 80-90% of his or her net worth tied up in the business. The importance of properly planning for a sale cannot be over-emphasized. 

Successfully transitioning your business to a new owner can take months, if not years, of hard work. So if 2016 is the year that you decide to sell, the preparation starts now. Here are a few important tips to help you get started:

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The Key Elements That Determine the Value of a Small Business

If there’s one thing that seems to constantly puzzle small business owners it’s their company’s value.

Agreeing on your company’s value will make or break a transaction – ultimately, a company is only worth what someone else is willing to pay for it. That said, there are four key elements that impact every valuation:

  1. The Buyer
  2. Cash Flow
  3. Risk
  4. You

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