Clients often ask me: is this a good time for business transfer? Should I wait to sell my company or business until the economy finally improves or can I already capitalize on the favorable merger and acquisition climate? Every year I write a blog about this. In the article below, I provide 5 reasons to sell the business in 2016
2015 another record year
2015 was a record year for mergers and acquisitions. Dealogic’s 2015 annual review shows this well. Mergers and acquisitions always come with waves. Globally, 2015 was clearly a record year in terms of the number and size of transactions. A total of five trillion dollars worth of transactions/mergers and acquisitions were announced for it, 37% more than in 2014. 2015 also showed a record in the number of very large acquisitions exceeding $50 billion. Examples include: the acquisition of BG Group by Shell for $47 billion, the acquisition of SABMiller, owner of our Dutch Grolsch by ABInBev for $104 billion, and the largest $150 billion acquisition of Allergan by Pfizer, known for Viagra. The food industry and pharma have been the major markets in which major acquisitions have taken place.
Lots of cash
The giant takeover wave is because there is a lot of cash available at these exchange traded funds. They can either buy back shares or they can acquire. They choose the latter. In the process, financing is cheap.
Will this takeover wave, as it is called, also come to Europe and the Netherlands?
In the last decade or so we have seen that the big takeovers also affect the merger and acquisition market in the Netherlands and also smaller transactions.
Transactions of 10 billion and more are disproportionate for us. But the drivers for mergers and acquisitions are the same. Meanwhile, the economy is doing well. The outlook is also good and financing an acquisition is very cheap with today’s low interest rates. A well-planned business acquisition provides the opportunity for growth, cost efficiency and other synergy benefits. These benefits are important precisely at a time when organic growth in sales is difficult to achieve and virtually all cost savings have been made.
The market is good
As a seller, you can take advantage of these favorable market conditions in your business transfer. More buyers are again available in the current market. Price conditions have also improved in recent years due to the low cost of financing the acquisition.
Financial investors, private equity firms, also still have plenty of cash available. They see with sorrow that the attractive bargains are being taken out of the market by the so-called strategic buyers who are in abundance. There is a lot of competition among the private equity firms. As a result, the terms under which they buy must be competitive and improve.
Is 2016 the best timing?
The timing of the sale of the company is a key external factor for the success as well as the price in the sale. Of course, this assumes you have things in order internally.
For many entrepreneurs, CEOs and family businesses, the current favorable climate is an important reason to take the step of selling the business. Buyers seem to be lining up. And experience shows that after a few good years the tide can turn. With two good years behind us, 2016 looks like another excellent year. But speed is of the essence. After all, a well-prepared sales process takes several months and good preparation is strictly necessary.
In summary, the 5 reasons to proceed with the sale of the company in 2016 are:
- The merger and acquisition climate is favorable
- Money is available and financing costs are very low
- There are many buyers in the market
- The economic outlook is good
- The price at which transactions are made have increased in recent years
If in doubt, contact us for a sharp analysis for your company: maybe 2016 is the best year for you to sell your business as well.
By: Maarten Vijverberg