Middle Market M&A Outlook for 2016 by Harvest, Business Brokers and Valuation Experts

50 yard line

“The man who says he is willing to meet you halfway is usually a poor judge of distance.”

– Laurence J. Peter

 

Here is what experts predict for lower middle market M&A, business sales and business acquisitions for 2016. To summarize:

1. “Choppy markets” for transactions – it’s an election year and though entertaining, no idea what’s going to happen. Uncertainty creates turbulence which creates indecision, only natural.

2. Interest rates – depends on the Fed. Expectations are for a slow rise but not hateful.

3. Inflation – remains low mostly due to low energy costs and international (ie China) slowdown.

4. Energy – renewable energy is hot, oil and gas isn’t. Other hot sectors are retail and security.

5. Strategic acquisitions – pace of business acquisitions will continue especially for companies in the high and low ends of the mid-market.

6. Valuations (deal prices) – may temporarily rise, though certain cyclical sectors like tech and consumer discretionary spending are in the later stages of growth and hence, valuations will taper off. Acquisition of companies in the middle of the mid-market will become more attractive, greater growth potential, therefore, more valuable to buyers.

7. Mid-market transactions – 2015 was a good year and that will carry over to the early part of 2016. Predictions are that 2016 will be decent, just not as good as 2015.

What does this mean for owners of a privately owned company? Consider this:

• During the next 10-15 years, $10 trillion of privately owned businesses will transfer ownership
• 10 million businesses will go to market in the next 5-10 years (Inc. magazine)
• Findings by Pew Research show that the older baby boomers started turning 65 as of 1/1/11 at the rate of 10,000 per day and that will continue   for the next 19-years. There’s a bunch of us!

Let’s sum it up, our experience was that the transaction market for 2015 started slow, finished stronger. 2016 is off to a much quicker start, a lot more activity. Baby boomer business owners that have been deferring their exit and have seemed reluctant to-go-to market. They are now cautiously starting to move forward. And yes, there are buyers.

But the law of supply and demand doesn’t lie. As a seller, do you want to go to market when everyone else does (think of the stats above)? Likely results:

• Buyers can be much more selective and
• Values drop when buyers have multiple buying options.

Or, would the value of your business be greater if buyers had fewer choices, and your company was one of them? While market timing rarely works it really may make sense to get started now ahead of the pack. Do what makes sense when it makes sense. The results are usually better. Just some thoughts, hope they help, call if needed.

This article is based on a paper issued by Axial Forum, written by Meghan Daniels (Axial is a web based service connecting mid-market sellers and buyers). Thank you Axial.

Harvest Business Advisors are business brokers and valuation experts located in Columbia, Maryland and Princeton, New Jersey serving business owners in the lower middle market.