Preparing for Success in 2018
The year-end numbers are in and, with the proper positioning, things are looking good for M&A in the Main Street and Lower Middle Markets. Following is some of the good news, some of the trends and forecasts, and some of the things you can do to avoid possible pitfalls on the horizon.
Transaction numbers for Small Business closings in 2017 were quite strong. Even with a slight 4th quarter drop, the industry saw record numbers this year. BizBuySell reported almost 10,000 transactions in 2017, up more than 26.5% from 2016. Many are rightfully viewing this as good news, and feeling that this trend will continue well into the future.
These positive outlooks are backed by our changing labor force demographics. The Baby Boomers are reaching their golden years, consistently retiring, and looking to transfer their businesses to the next generation of acquirers and entrepreneurs. The number of Baby Boomer retirements is expected to hold steady above the 4,000,000 mark annually through 2028, which can be a direct contributing factor to the number of small businesses being offered for sale.
The sheer number of people in this demographic segment should prove to have a great effect on the supply side of the equation. We are going to see an inevitable steady increase in the number of Baby Boomers over the age of 65, and total numbers are expected to reach over 70,000,000 people by 2029.
Another factor that drove M&A activity in 2017, and is poised to continue into 2018, is the declining number of skilled workers available in the labor force today. Many 2017 acquisitions were strategically executed in an attempt to gain talent that was otherwise hard to come by.
This type of growth strategy looks good for the early adopters but does not seem indefinitely sustainable. While the difficulty of finding skilled workers can be felt in many industries, construction, in particular, is not expecting to see an improvement in this situation for a while.
According to a Q3 2017 US Chamber of Commerce report, “Nearly all (91%) contractors are at least moderately concerned about the skill levels of the workforce, down slightly from 94% in Q2 2017.”
- Become a high-quality target for acquisition
- Put forth effort into finding and retaining a skilled and competent workforce
- Develop second-level managers that will help your business smoothly transition to a new owner
- Have timely, accurate financial information prepared by an independent CPA
Start the Process
It is not uncommon to start a succession plan three to five years before you think you may want to sell your business. These years of planning often lead to a dramatic increase in your potential sales price.
Discuss your plans with a knowledgeable Intermediary. The FBB Group has been helping business owners with developing a comprehensive exit strategy since 1982. The future looks very bright for properly prepared business owners.
The majority of our business is derived from referrals. Please consider referring our services if you encounter a situation involving the potential purchase or sale of a business.
Ronald V. Chernak
Inspiring business relationships since 1982!
(originally posted in the February 2018 newsletter)