A Unique Market Benefitting Buyers and Sellers of Small Businesses
2019 was a year of historically high activity, if not record breaking in transaction volume, record breaking in key financial metrics. 2020 will be no different with interested buyers, cheap financing and an onslaught of robust businesses for sale. The market as it stands is a unique combination of opportunity for buyers and gain for sellers that will make for another sturdy economic year in the face of challenges the election could present.
Introduction
Where Europe saw more than a 20% decline in M&A activity, the United States had its highest share of activity since 2001 with 47.2% of global larger M&A transactions taking place in the US (MergerMarket). Private equity’s share of the action continued to grow for the third year in row, a trend Transworld has seen trickle down to the small business M&A market as well. This trend is likely spurred by private equities large cash reserves coupled with low interest rates and the pressure to complete growth inducing transactions before market conditions change.
This brings us to the question, “What are we expecting in 2020 for small business and the overarching world of M&A?” It seems the answer to this question lies in the balancing act of a number of factors coming from opposite ends of the spectrum. On the one hand, 2020 is the election year we’ve been talking about in perpetude. In Business Broker, Ross Haymes’ words, “The business sale market is active right now, but historically, presidential election years have seen a slowdown in deal activity because of the uncertainty about the future business environment and new or changing regulations that may occur.” There is also the recession many have been speaking about, the level of and timing of which are still unable to be predicted.
But, and this a big caveat, the major exodus of baby boomer business owners from their companies has hit its stride. This shift in ownership and wealth is pushing an environment of almost infinite possibility for business owners and future entrepreneurs to benefit from especially while financing is still cheap. These opportunities include the acquisition of incredible, established companies with the intention of taking a scale through acquisition approach or growing a company by implementing innovative strategies.
With these two sides of the M&A story combining in 2020, Transworld is predicting a good year for transactional activity. At the end of the day, even with slightly decreased transaction activity the market is hitting high numbers. The Colorado market is also not your average market - Denver has been voted top city for doing business, it is the top growing city in the US, retail growth is astronomical, commercial and residential development continue on an upward trend, large corporations and technical companies are flocking to the area, it’s a leader in the hemp and marijuana industry and the quality of life is high. What all of these criteria are saying is that the Colorado economy is strong, diverse, and resilient and this high level of activity should continue for a few more years.
Taking Action in Small Business Mergers & Acquisitions
In a year end Colorado Association of Business Intermediaries meeting, Charlie Dougherty, an Economist with Wells Fargo Securities, summed up his sentiment on the 2020 economic forecast with, “Don't worry, be happy.” He went on to say that 2020 and beyond look fine for economic growth because it has been sustainable or "slow growth" for 10 years now, and not a bubble like we saw in the past during the 2008 recession. The next 2 years at least should be stable and a recession is unlikely. This underlines our advice to buyers that they should have confidence in the economy and that purchasing a business is a sound decision especially with the availability of good financing options to back them up.
Transworld’s message to business sellers is a little different because while their opportunity to benefit from great buyer activity and a strong economy is there, they must also keep in mind that we have not yet reached maxed out levels of the seller tsunami - when we do the return a seller can receive for their company may become limited, so listing a business for sale now is in their best interest. Roger Smolik, a Transworld Business Broker reiterates this idea when he said, “While prices are strong now for sellers, and it is a seller's market, that will start to shift and change to a buyers market eventually due to the aging baby boomers flooding the market with businesses for sale. We know that we can get a strong price for you now, but down the road the return will be less sure, so the time for action is now.”
To learn more about planning an exit in 2020, schedule a consultation with a business broker today.
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About Transworld Business Advisors - Rocky Mountain
Transworld is the top business brokerage firm in Colorado, listing 200+ businesses for sale annually. Transworld assists visionary entrepreneurs with buying or selling a business in Colorado, specializing in helping family-owned and closely held businesses with their strategic plans. Through their commercial partner, Transworld Commercial Real Estate, Transworld also advises clients on commercial real estate acquisitions and dispositions.
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Rachael Holstein has been the Marketing Manager for Transworld - Rocky Mountain since 2016. Her working experience has largely focused on Business Development in the finance, architecture, property management, and information technology industries. A long time resident of Cleveland, Ohio, she attained her undergrad from John Carroll University and her Master’s Degree in Global Interactions from Cleveland State University. In 2013, she relocated to Denver with her husband, Joe, and her furry companions to explore the mile high life!
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