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The M&A Market Is Heating Up. Is the Time Right to Make a Move?

The M&A market is going to be hot this summer. That means that as the velocity of spending increases, small to mid-sized business valuations across the nation will increase as well. For CEOs looking to strengthen core competencies through acquisition or divest non-core capabilities, the timing might be right to make such growth-related decisions.

Not since 2007 has the National Federation of Independent Business (NFIB) reported that its leading index of business optimism, the Small Business Optimism Index, has topped 96, but that it did in May. While 96 is still below the Index’s historical average, it’s the trend that matters.

The driver of middle market business value is growth: sales growth, market growth and resource growth. Also, private company leaders who responded to PwC’s Trendsetter Barometer survey expect to outperform their GDP forecasts, and their expansion plans, PwC says, are picking up steam.

“Private company leaders expect to outperform their GDP forecasts, and their expansion plans are picking up steam.”

 

So despite a frigid eastern winter, which put the brakes on spending in Q1 with GDP contracting 2.9% in the U.S., and summer concerns over global conflicts and energy prices, the economy is still projected to grow 3% or better this year.

Meanwhile, as the benchmark 10-year Treasury Note remains below 2.6%, research firm FactSet reports that Consumer Sector M&A topped $26B in the first five months of this year—the hottest since 2008.

The S&P and Dow indexes both continued to make new all-time highs in May and June with no signs or reasons to abate just yet. The VIX (S&P Volatility Index or “the worry gauge”) is under 12, far below the 60 high mark it hit in October 2008 during the height of the Great Recession.

How long will this market “frenzy” last? And what does this mean for business owners in the middle market?

About Rick Andrade

Rick Andrade is a Managing Director at Janas Associates, a Los Angeles based investment banking firm helping buy, sell & finance middle market companies. Rick has his BA and MBA from UCLA. He blogs at www.RickAndrade.com on issues important to middle market business owners.