I was recently at a networking event and was asked an interesting question: Do I see the current M&A market as being a buyer's market or a seller's market? This is a very intriguing question because my immediate response that I gave has changed the more thought that I put into the question.
Currently the initial reaction would be that the market is great for if you are a seller. The number of businesses being listed for sale is bound to go up in the coming years so the competition you might face 5 years from now will be increased. Essentially there are a lot less fish in the sea so you are a pretty appetizing acquisition. This fact coupled with the fact that there are many folks out there that have access to funding or cash on hand to make an acquisition makes it a great time to be a seller.
The problem for seller's is there are not a lot of buyers out there yet. It will soon be a great time for strategic buyers that can acquire an under performing business, integrate it into their business and quickly grow their revenue. While there are some proactive buyers out there, many are still in the preparation and gearing up stages. They know they can shop around a bit now because soon enough there will be plenty of tires to be kicked and those investment dollars will go further. Sellers have to remember that they are dealing with sophisticated business folks and see the same market trends as sellers do.
While I think the obvious answer is that the current market might not be great for buyers because many are looking to that future boom of businesses available for purchase later. The competition for buyers to outbid other buyers at the moment is high because everyone has capital and the number of businesses for sale is relatively low.
At the same time, there is nothing right now that forces a buyer to buy. As stated above, buyers can bide their time looking for the right fit because more options are bound to come available in the near future. And there are also deals to be had. Some sellers are rushing to market because of health issues with ownership and some are trying to beat the rush of the other baby boomers. These sellers are often have overvalued their business or thought that hurrying to market would get them a better deal. This gives buyers a chance to acquire a business that with 5 years of planning for a transaction would be valued much higher.
Additionally there is capital to be had right now. Originally the experts told us the market would start to become flooded with businesses transactions around 2007 or 2008. Then the United States was hit with a recession and the economy and transactions slowed down. Who is to say that buyers will have the same access to capital in 5 years? Maybe its time to strike while the opportunity is available.
Buyer or seller it doesn't matter. The market is what you make of it by having a good plan in place and executing that plan. If the market is flooded with businesses for sale, your business can still stand out in the crowd. Because their are more businesses for sale there very well could be more buyers in the market that can see your business standing out in the crowd. And if good businesses for sale are tough to come by does it matter the number of bad businesses that are for sale? Your plan needs to work for today but also needs to prepare you for the future regardless if you are a buyer or a seller.