Understanding Trends in the M&A Market
Global M&A activity may have slowed during the last half of 2018, but the year still saw $2.72 trillion exchanged across 13,575 deals — making it the year with the second-highest global value on record and the highest global value since 2007. Because of this, 2019 has been a good year for the M&A market so far and it’s doubtful the growth will stop any time soon. Learn how to understand the latest M&A market trends so you can make educated investment decisions.
Technology Makes the M&A Process Easier
Technology makes the merger and acquisition process easier than it ever has been before. Now, there are SaaS companies, such as SourceScrub, that help business owners find investment opportunities and automate a lot of the workflow associated with the process. SourceScrub created a streamlined process, which takes the guesswork out of it, making it easier for both the seller and the buyer. Of course, both parties will still need help from their business attorneys, but overall the process is smoother.
M&A Activity Remains Healthy Across All Sectors
Technology has been transforming practically every industry out there, including the M&A market, so it’s not surprising that it will remain a dominant sector for the foreseeable future as more and more companies look to acquire businesses that can make a valuable impact on their core operations. Traditional companies that are looking to modernize their business will start acquiring tech companies. Of course, pure-play tech and industry disruptors will also continue to be major players in the M&A market.
The healthcare industry should also continue to see heightened M&A activity because there are many disruptors in the industry. But technology and healthcare aren’t the only industries to watch. M&A activity remains healthy across all sectors, and that’s not something that’s expected to change any time soon.
Excess Capital and a Low-Growth Environment Fuel Acquisitions
Companies have more liquidity now than they have in the recent past. Many have used the excess cash to buy back their own stock and pay down debts. Now, companies are in a position to focus on growth.
However, the global economy is currently in a low-growth cycle. This means investors are still seeing lower-than-normal returns on investments. Because of this, many companies with excess capital are looking to grow via acquisition, even though interest rates and financing costs continue to rise, instead of seeking out other types of investments.
Baby Boomers are Ready to Transition Ownership of Their Businesses
The fact that Baby Boomers own 2.34 million businesses across the U.S. has a huge impact on the M&A market. As these owners continue to retire over the next five years, they are looking to transition ownership of their businesses. Some will pass on their companies to their children and/or grandchildren, but in many cases, family members don’t want the responsibility.
That leaves them with three options — sell the company, shut the company down, or transition to a worker-owned business model. So even though some companies will go to other family members and some will use a worker-owned business model, you can expect to see a lot of acquisitions taking place in the next five years, especially in middle-market and lower-to-middle-market companies.
Ultimately, the M&A market isn’t expected to slow it’s pace any time soon. So when you’re making investments of your own, be sure to check what’s going on within your preferred industry first. After all, the M&A market directly impacts other investment markets, which means it could impact your returns.