We’ve been writing in this column and in our newsletters for a couple years now about the upcoming reversal of fortunes for business owners wanting to sell their companies in the next few years. We wrote about the changes in valuations that will come when many more businesses enter the market looking for buyers as more and more baby boomers finally make their move, and the need to be proactive today to avoid being left behind with depressed valuations. A white paper just released by Mergers & Acquisitions in partnership with RSM US LLP, an accounting firm, seems to suggest it may have already started. Here are excerpts from that report – emphasis is mine:
After enjoying several years of solid growth, (M&A in) the manufacturing sector is poised to see a slowdown. Transaction professionals predict there to be growth in the manufacturing sector, but at a slower pace than the past two years, according to the latest reading of The Mid-Market Pulse (MMP), a forward-looking sentiment indicator that monitors M&A professionals’ expectations for merger and acquisition activity within the middle market over the coming 3- and 12-month periods.
“Global and domestic growth are contracting,” says Joe Brusuelas, Chief Economist for RSM US LLP. “There are overall challenges facing growth in all sectors, including manufacturing.”
Additionally, the slow down isn’t all bad news. As a result of the slower growth, private equity firms believe that by the middle of 2016, it will be a good time to pick up manufacturing assets. In fact, according to the MMP, 54 percent of dealmakers believe they will be completing more manufacturing deals in August 2016 then they did in August 2015. Slower growth will likely result in lower valuations for manufacturing companies, which is a score for private equity firms who have been struggling to win deals in the ultra-competitive market environment.
“Overall manufacturing activity has slowed down, but as values come down the M&A middle market is expected to be pretty active. The goal for private equity firms will be finding assets at the right valuations and not overpaying.”
This trend is just beginning. While the quoted stats are for only a year out, the numbers aren’t going to get any better, in my opinion. If you are one of those people who built a solid, successful business over the past 10, 20 or 30 years and felt it would be as valuable to a prospective buyer as it is to you, it may be time to get a second opinion. If your business is not exactly the cream of the crop in your industry but it’s still the financial foundation of your planned retirement, we should talk before the market gives you an unpleasant surprise. The number is 888.788.6534.