Market Report: Winter 2017
January 10, 2017
We saw the usual slow-down of activity during the second half of Q4 but both buyer and seller activity picked up dramatically after the New Year. It is still a “Seller’s Market” with a notable lack of performing businesses available for acquisition but the pool of qualified buyers has also shrunk keeping valuations from moving into the speculative bubble range.
A few thoughts:
- It is guaranteed that interest rates will go up—perhaps substantially if the government undertakes significant deficit spending on defense or infrastructure. Higher borrowing costs will be imputed into business valuations (lower) and decrease the pool of qualified buyers.
- Some sellers were taking a “wait and see” attitude in 2016 in the hopes that tax rates will be lowered in a new administration. Any reductions in tax rates will be retroactive to the first of the year (17) so it may not be necessary to hold off on a planned exit strategy.
- Despite a lower growth rate, the US has experienced a prolonged period of positive economic activity. It’s likely that a normal cyclical downturn will occur within the next 10 years. Sellers looking to retire or exit should consider their timing of a potential sale.
- An increase in interest rates will shift some buyers from active investments (businesses) to passive investments (bond market). This will reduce the size of the buyer pool.
Overall we expect 2017 to be strong but slower than 2016. Increased competition from the last several years, expected higher interest rates and unknown government policies could make for a very unpredictable year. As always, we recommend that business owners meet with their advisers early on to create a road map for an eventual exit strategy.
