Business growth mentality has transitioned from building to buying in the recent years because of globalization, technological advancements, low-cost of capital and highly competitive conditions in various industry sectors. 2017 saw $3.7 trillion made in global M&A deals, having the tech industry making the majority transactions. Interestingly, even other industries have begun to understand the advantages of acquiring smaller businesses in order to remain competitive. 2018 is expected to see an even higher number of deals as companies are eager to seek opportunities that boost inorganic growth.
Companies with strong profit margins, niche market, and solid management teams will continue to be highly sought after by strategic buyers for deal-making opportunities this year. Valuations continue to increase steadily as industries continue to experience a robust seller’s market with activity from both domestic and international buyers.
Since operating environments across most industry sectors are at an uptick, an increasing number of firm owners within the IT, Healthcare and Staffing industries seek to take advantage of their current strong performance by profiting through either recapitalization or a sale. There is a noticeable increase in seller interest as advancing operating results via Mergers & Acquisitions make targets more easily attainable. Several business owners are also noticing the potential risk of holding on to their firms for too long that could lead to missing the open window of opportunity for completing an M&A transaction.
Global Mergers & Acquisitions has seen a value of $1.2 trillion in the first three months of 2018 and is expected to maintain a steady growth throughout the year. However, it’s possible that this steady appetite for acquisitions may not last long, and a short-term downward turn in M&A activity may begin as early as the latter part of 2018 or 2019. In the last 25 years, M&A activity has seen a cycle of buyers reacting to overall negative trends in the market, with the average cycle lasting around 9 to 10 years. Due to global political events and emerging technologically-driven industries such as cryptocurrency & blockchain, a rise to uncertainty in economic policy and trade conditions for the coming years are foreseen. This increase in market volatility may begin the downward turn of this cycle.
While M&A activity could reach a potential downturn in the near future, several companies are still aggressively looking to buy at the moment, which is why now is the time to act fast. For business owners, it is the best time to sell and cash in on their success before a possible market fall.
Managing Partner, Golden One Ventures
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