Happy New Year and continued success to all the business owners and soon-to-be business owners out there.
As I predicted in January 2013’s article, the looming tax expiration date drove M&A activity in 2012. Cornerstone, and many other M&A firms, worked as many hours as Santa’s elves trying to close deals by the end of the year.
What I didn’t predict, however, is that sellers would come to us as late as they did. I expected we’d be hopping in January, February and March last year, but we didn’t see any uptick in activity. Instead, we got bombarded in late summer by sellers concerned about the tax crunch.
On average it takes nine to 12 months to sell a business, so needless to say we had our work cut out for us. Some of the deals we were able to get done, but unfortunately several others will likely be closing this month—after the deadline.
For 2013, my crystal ball suggested that activity would remain strong. Even though taxes were going up, we believed momentum would continue. A recent study conducted by the IBBA and M&A Source in partnership with Pepperdine University showed that 57 percent of brokers nationwide believe that M&A activity will pick up due to better market clarity.
Many people were in wait-and-see mode, watching for what was going to happen with Europe, the elections, and the fiscal cliff. As long as Washington can manage not to screw up the economy too bad, we should continue to see slow to moderate growth.
Once the tax issues are finally decided, both business buyers and sellers will have the clearest picture they’ve had in a long time over what the next few years are going to look like. That’s going to help both sides enter the M&A market with greater confidence.
We also believe more sellers will enter the market now that 2009 is off their books in terms of the trailing three year average typically used for valuations. For most, 2010 to 2012 have been showing steady growth trends on the top and bottom line.
Finally, some baby boomer sellers will enter the market simply because they’re tired—and rightly so. These are the folks who coulda, woulda, shoulda sold in 2008 or 2009, but because of the Great Recession they had to hold out an additional three to four years. Now that their numbers are back, it’s time to cash in and finally enjoy that delayed retirement.
As for me and the team at Cornerstone, I think we’re all just happy to be enjoying a short post-tax-deadline breather. I know lots of lawyers and accountants out there feel the same. Now bring it on!
Scott Bushkie is Principal of Cornerstone Business Services. To request a book (at no cost) with advice on the exit planning process, contact Scott at (888) 829.9061 or[email protected].