M&A Activity – What You Need to Know About Current Conditions
Many of the business owners who attend our M&A conferences are surprised to learn that M&A activity has made a solid recovery over the past few years. Many of you hear about the overall malaise affecting the economy and make the assumption that this is also the case for mergers and acquisitions. Based both on what Generational Equity has experienced over the past year and data we have seen created by industry analysts, it is apparent that M&A activity has begun to quietly recover from the impact of the financial crisis and recession in 2008 and 2009.
New data released last month by Capital IQ, a leading provider of data and analytics for global financial professionals, illustrates this. In their Market Observations for December 2011, Cap IQ has clearly demonstrated that overall M&A activity is improving strongly over the past 12 months. Their data is shown graphically below.
Number of Completed Deals for the 12 Months Ending On November 30th Each Year
Source: Capital IQ Market Observations – December 2011
As you can see, M&A activity hit its low point in 2009 during the midst of the last recession, which technically ended in June of 2009. This was true both in North America and Europe where the low point was 10,515 and 13,230 deals closed respectively in the 12 months leading up to November 30th of that year.
What I found most interesting though is that North American deal-making activity has actually surpassed the last high point in 2007 with 16,263 deals closing in the past 12 months prior to the end of November of last year. Given the current economic concerns in Europe, it is not surprising that M&A activity there is still below the peak of 2007.
In fact, if you look closely at the data, the number of deals closed in North America for the 12 months ending Nov. 30, 2011, was up 16% above the last peak in 2007. This is pretty remarkable given all the negative economic news we have been hearing in the U.S. for the past six months or so.
Could it be that once again buyers in North America and indeed, throughout the world, are finding North American-based companies to be attractive M&A targets? The data sure seems to support that.
Knowledge is Power
How many of you were aware that the number of deals closed was up 16% in 2011 over the last high point in 2007? Not many I would guess. If you fall into that category, then you need to attend one of our free, no-obligation M&A workshops.
Our meetings are designed to bring the business owner up to speed on current trends affecting M&A activity. One area we spend quite a bit of time on is the whole question of when you should sell. Time and space does not allow me to spend too much time on this, but essentially the optimal time to sell is when the market tells you it is prime.
Generally speaking, the most favorable time to look for buyers is when one or more of these key factors occur:
Right now we are in a rare point in time when all three are lining up simultaneously. Interest rates are at all time lows, cap gains taxes are likewise at historic lows, and both private equity firms and strategic players are flush with cash needing to be invested.
One of the key mistakes business owners typically make is selling at the wrong time. If you would like to learn more about market timing as well as how to avoid other common mistakes when selling your company, I would invite you to download our free whitepaper on the topic. You can do so by clicking here.
As mentioned, if you are unaware that M&A activity is up by 16% over the previous high in 2007 and you are likewise uninformed about what factors drive the timing to sell, I would suggest that you educate yourself on this issue by attending one of our M&A workshops.
Consider this: As much as you don’t want to think about it, one day you will be exiting your company. You can either do it when the timing is optimal or you can do it when you are forced to – due to age, illness, divorce, or a myriad of other circumstances, many of which are beyond your control. So be proactive and learn as much as you can so that you can plan for rather than react to the timing of your exit.
© 2012 Generational Equity, LLC All Rights Reserved