307) Timing of Mergers and Acquisitions


Timing of Mergers and Acquisitions – Today’s Environment

Excerpts from John Slater’s case study interview about the timing of mergers and acquisitions: “We’re right now in an environment where the amount of money available for the purchase of businesses is greater than it’s ever been, the recent estimate’s 1.2 trillion dollars. Money that’s available to the corporate buyers and the private equity funds ready to commit to buy businesses. Frankly, there’s a shortage of businesses for sale.

As a result, the valuations have gone up to historically high levels over the last couple of years. A lot of that frankly is just because interest rates are so low. As a leveraged buyer, I can afford to pay more because I’m not having to pay any interest and I can get good leverage from the banks. We’re in a very heady time not unlike the time in the early 2000s where (one of) my client(s) could have sold the first time.”

Timing of Mergers and Acquisitions – A History Lesson

“Lesson one is; timing is everything in the M&A business. I personally believe that we’ve got a window of opportunity here. We’re now moving towards the middle of 2015. I think through maybe 2016–different people I talked to have different end dates, but maybe into 2017 but not much beyond that, we’ll still be in this heady phase. As soon as the Feds start raising rights, obviously, that changes part of that valuation equation. So, if you are a baby boomer entrepreneur, let’s just say you’re 62 years old today, you’ve built some nice business, you’re in an industry where either financial or strategic buyers are going to be willing to pay a pretty nice multiple, will you face with this choice?

You’re probably looking at things and saying a couple of things, one, ‘Gosh, I’m growing, I got past the disaster, I’m alive and I’m growing and I’m going to be a lot more valuable some point in the future just because I’m growing’. Well, probably that is, you may be more profitable, but if multiples for business purchases drop from eight to ten, which we’ve seen in many cases in the last year or two, back to a normal six times cash flow, you’ve got to made a whole lot of progress in your earnings growth to even get back to even once the prices go down. And, as I said, there’s a lot of money out here. Well, there was a lot of money in 2007. The crash hit in 2008 and there was not that much money out there in 2009.”

Timing of Mergers and Acquisitions – The Current 7-Year Cycle

“If these cycles play out the way they normally do, it’s about a seven-year cycle from lows to highs and it has been ever since I’ve been in the business. That means that if I’m 62 today, I’m going to be 69, maybe 70. If I’m 65, obviously, I’m going to be even worse off. So, I’ve got to be making decisions; do I really want to keep running this business for that long period of time? If I don’t, even if maybe my earnings will be higher next year, that may not be a risk that I want to take. Maybe that window of opportunity doesn’t go until the end of 2016, it only goes to the end of 2015.

So, timing is everything, but not just market timing, the timing of where you are in your own business cycle matters a whole lot, as well. We work with clients, we advise on all those factors before they make a decision.”

More About John Slater and Focus Investment Banking LLC

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Location Sponsor

Thank you to Butler Snow Advisory for providing a location to film our Memphis interview series.