The recent presidential election and the Fed’s decisions to cut rates by a collective 75 basis points underscore the need for business owners to consider whether they should sell their company and consider a merger or acquisition (M&A).
Since July, GHJ has seen a significant uptick in activity as investment bankers plan for transaction launches in Q1 2025 with increased Quality of Earnings report requests. Anecdotally, investment bankers have been ramping up hiring activities, which may signal an expectation of increased talent requirements to meet expected demand.
RECENT DEVELOPMENTS
The M&A markets experienced a slowdown in the middle of 2022 in the wake of increased interest rates and a general dampening of optimism in economic outlook. GHJ has observed buyers becoming more selective about acquisition candidates, with longer diligence timelines. Valuation gaps between buyers and sellers are also widening, which is causing a slowdown in activity and extending transaction processes. While public markets indices have risen significantly post-election, signaling investor optimism, they have recently pulled back from inflationary concerns.
Additionally, the Fed lowered rates by 50 basis points in September 2024 and another 25 basis points just prior to the election.
GHJ’s ongoing communications with investment managers and investment bankers have confirmed a generally positive economic outlook, which has been driven by rising consumer confidence, the stability often associated with post-election cycles and the business-friendly policy positions the incoming administration ran on in 2024. In particular, the new administration plans to expand energy production and development, and these plans are expected to reduce energy costs, which may mitigate inflationary pressures and make it less expensive to operate plants. The administration has also signaled a strong commitment to cutting back on both regulations and regulation enforcement, which will lower costs to companies, boosting company profitability.
Some financial buyers sat on the sidelines over the past few years due to economic uncertainty and increased interest rates. However, current economic optimism around taxes and increased investment in technology efficiency (such as AI, automation and innovation) could drive private equity investor activity moving forward. Moreover, the FTC is expected to take a more flexible approach to M&A activity in the future.
CONCLUSIONS
Privately held business owners should always have their businesses ready for transactional activity for two reasons:
- The business is run better and is more profitable, which increases value.
- There is no substitute for being prepared when an unanticipated buyer comes along and wants to engage in discussions.
GHJ is seeing a significant uptick in preparations for M&A activity, which indicates the likelihood of increased activity in 2025. This is an ideal time for businesses to focus on optimizing their value in case of a potential transaction.
To learn more about assessing the salability and market value of a business, improving a company’s value and selecting the best-fit investment banking firm to advise on the transaction at the right time, please contact GHJ’s Growth Planning and Strategic Advisory Practice.
