A perfect storm of low rates, consolidating markets and cash-rich buyers could spark a deal-making frenzy. Are you ready?
by Rick Telberg
At Large
Hold on to your hats. American business may be on the brink of a new rush of mergers and acquisitions.
CPAs in the mergers and acquisitions space are telling me they have been seeing an upsurge in M&A momentum during 2004. And they expect the trend to gain more steam in 2005.
This could be a boon for properly positioned CPA firms of all sizes.
CPAs in the mergers and acquisitions space are telling me they have been seeing an upsurge in M&A momentum during 2004. And they expect the trend to gain more steam in 2005.
This could be a boon for properly positioned CPA firms of all sizes.
(Get a FREE preview of the study.)
For CPAs in business and industry it may be both a blessing and a curse. The ramp-up to a deal can give a financial manager a chance to shine. In the aftermath, however, finance departments are often second only to marketing departments to face the axe. Don't worry too much though: the Sarbanes-Oxley earthquake is expected to keep the financial job market humming for at least another year.
But why the M&A resurgence now? And what does it mean?
After the lull following the burst bubble and broken hearts of the 1990s, cash-flush corporations are on the prowl, and post-bubble survivors are looking for offers, according to Michael Jacobs, president of Atlanta-based Jacobs Capital, writing in Catalyst magazine.
"There is no precedent for this amount of cash" available for deals, according to S&P equity analyst Howard Silverblatt, quoted in Forbes magazine.
The message to owners of small- and medium-sized businesses is: get ready, get set, get sold.
It's a sellers' market, but not for long.
T
he same dynamics are playing out in the CPA firm marketplace. Larger firms are gobbling up smaller firms. If you're looking to cash out, this is a great time to sell. But that's another story, or two: See "It's a Great Time to Sell!," "Buy or Sell? Firms Ponder Profits, Perils," "6 Things You Must Do Today to Thrive Tomorrow," and "What's Your Business Worth?"
In fact, middle-market transactions have almost doubled in the past year. The main drivers are increased cash flows and improved revenues in corporations that trimmed down during the recession and are already taking advantage of the recovery.
Another big driver is the low cost of capital. Though interest rates have nudged up, they're still down. And it will be a long, long time before they get this low again. Companies in search of companies have every reason to borrow now, acquire now, and pay later as the acquired companies start sucking up the cash of a recovering economy.
It's no surprise that last year 75 percent of merger deals were cash transactions. After all, why give up shares just as they're finally starting to be worth something?
Meanwhile, private equity funds have entered the market. After half a decade of poor performance, they're hungry for companies they can flip for quick profit. They're looking for companies that have survived by trimming back to maximum efficiency.
At the same time, there are more sellers than ever before. Many were waiting for the advantageous moment. Many are owned by aging baby boomers who are starting to think about retirement. And just in time, the capital gains tax is about as low as it'll ever get.
It's a sellers' market, but it won't be for long.
The deals will go to those who are ready. So get ready. Get set. Go deal.
NOW IT'S YOUR TURN: : What could a new M&A boom mean for you? Sound off here.
COMMENTS? Send your rants, raves, questions or idle thoughts to Rick Telberg here.
