1) New tax law means more capital in buyers’ pockets, so sellers should get it while it’s good!
The new tax reform signed into law on December 22, 2017, by President Donald Trump, has put capital back in the pockets of business owners, which means 2018 is the year to sell. Corporate executives and private equity investors alike have more in their pockets to put into a new venture, which makes mergers and acquisitions a sellers’ market this year. In addition, foreign investors are more willing to invest in US businesses as the lower taxes present incentives for them to bring their money to our soil. Now is the time to reap the benefits of this new tax structure.
US Corporate tax rate dropped from 35% to 21%, eliminating corporate alternative minimum tax.
2) Low Interest rates are still prevalent but are expected to rise by year end.
Interest rates for business investments are still low for the time being, but with a decrease in unemployment, projections show a possible four-phase interest rate hike by the end of 2018. As the market is dominated by a small amount of quality enterprises up for grabs and interest rates are ideal, acquirers are willing and able to spend more on acquisitions, giving sellers high multiples for their businesses. This is the year business owners' hard work and long hours pay off.
Jobless rate was 4.1% in October 2017, and is predicted to drop to 3.7% by the end of 2018, and drop to 3.5% in 2019 (lowest unemployment rate since the late 1960s), which will lead to interest rate hikes.
3) Baby Boomer generation to affect sales costs.
Now is the time to take advantage of the deal scarcity present in the market. Currently, it is estimated there are over 76 million baby boomers in the US. Baby Boomers were born between the years 1946 and 1964, and they range in ages from 53 – 71 years old. That’s a large number of people coming into retirement at the same time. This opens the door for a flood of businesses to hit the market simultaneously. Deal scarcity won’t last much longer, and once the market is filled with an abundance of options for buyers, the ball will be back in their court, giving them more negotiating and buying power.
76.4 million baby boomers, the youngest 61.3 million to be 65 by 2029. Some 8 million businesses projected to go on the market for sale in the next decade.
Top of the M&A Wave, you don’t want to wait until the storm calms to make your move.
All of these illustrated factors are keeping the M&A market favorable for sellers. However, like all good things, the profitable M&A cycle must come to end. Get ahead of the recession, and make 2018 your year. Now is the time to reel in the benefits of this sellers’ market. With low interest rates, more capital in buyers’ pockets, and deal scarcity in the market, now is the time to act. As a business owner who is considering your retirement options, waiting to make your move could be your biggest mistake. Higher multiples are being achieved with mergers and acquisitions now as it’s at the peak of its cycle.
About Benchmark International
Benchmark International's global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $5B across 30 industries worldwide. With decades of global M&A experience, Benchmark International's deal teams, working from 13 offices around the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.
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