2015 may be a record year for dealmaking around the world. According to The Economist:
Chief executives are dusting off their checkbooks once more. Figures from Dealogic show that global takeover activity in the first quarter reached $889 billion, up 21% from the same period in 2014. It was the strongest first quarter since the financial crisis.
The data can be seen graphically in the following chart: mergers_acquisitions_record_first_quarter_2015
As you can see, in the past 20 years there have been three major M&A booms: 1995-2000, 2003-2007, and the current one that we are in, which started in 2013. A number of factors are combining to possibly make this upswing the longest and strongest in the past 30 years or more: historically low interest rates, significant cash on corporate balance sheets, a strong stock market, significant capital that has been committed to private equity firms, and – most importantly – renewed confidence, especially in the U.S., that the economy is on strong footing and stable.
When Will It End?
The million-dollar question as always is this: How long will this current cycle last? However, if you own a business, you should be asking: Am I going to miss out on this cycle and wait for the next one before I find a buyer for my business?
Although companies are sold during the 2-3 years in each downturn (see the chart above), the cost to a business owner can be quite high. Valuations tend to plummet during downswings as buyers put their acquisition plans on hold, and you have too much supply (sellers) chasing too little demand (buyers). We saw this most clearly during the last recession. We had clients who put off entering the market in 2007, expecting the cycle to continue upward, only to find out three years later, when desperate to sell, that the original value of the business had dropped dramatically.