2012 Economic Projections – Where the Growth Will Come From
At the beginning of January, Pepperdine University’s Private Capital Markets Project, along with Dun & Bradstreet’s Credibility Corp., surveyed the owners of more than 3,000 small- and medium-sized companies in the U.S. regarding their collective outlook for 2012. The survey is a great snapshot of the lower-middle market since more than 70% of the respondents had revenue below $5 million.
All of the data collected and Pepperdine’s analysis was compelling, as it always is in their studies, so we will be looking at various components of the study over the next several weeks. However, one piece of data really caught our attention. It can be found in the following chart.
Source: 2012 Economic Forecast: Insights from Small and Mid-Sized Business Owners - Pepperdine Private Capital Markets Project – Graziadio School of Business and Management
The preceding chart clearly shows that cost cutting is no longer the leading strategy to enhance business value in 2012. This is not surprising. After having squeezed every single drop of profit possible via cost cutting to survive the Great Recession, business owners now realize that the best way to improve the value of their business is via growth, not cutting.
Why This Will Drive M&A Activity
Unfortunately, with anemic economic growth expected in 2012, revenue growth will be a challenge. This is true of businesses of all sizes and across all industries. This is one of the many reasons analysts expect M&A activity to ramp up during the next 12-18 months.
With more than $2 trillion in cash on corporate balance sheets right now, CEOs realize that the fastest way to grow and expand market share is via acquisitions. Although many will pursue organic growth opportunities, a number of leading corporate stratetgics will use this opportunity to expand by buying into new markets, obtaining new technologies and processes, and gaining access to new brands.
This is why we are recommending that owners of privately held businesses develop exit plans now in anticipation of the continuation of the seller’s market that emerged in 2011. If you would like to learn more about this, Generational Equity provides extensive information to business owners via our M&A workshops. They are designed to educate business owners not only on the trends impacting deal-making, but also to provide real, hands-on knowledge about how to find buyers and close deals.
If you are like most business owners and have never created an exit plan, our workshop could be vital for you and your business. If you would like to learn more, please click here and we will have one of our M&A professionals will contact you to find out if your business is qualified to attend.
Bottom line: Be proactive and plan for your future. The reality is that if you don’t plan ahead, circumstances will eventually force you to make exit planning decisions on the fly. Don’t fall into that trap. Take advantage of the aggressive buyers on the horizon in 2012.
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