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Market Timing 3rd Quarter 2019
Presidential Election Year Lock Down

During presidential election years, markets for private companies typically lock up around Q2 of the election year. Buyers want to wait and see who gets elected and how that person may affect our markets before buying a company. Given the current political divide in the US, this lock up will be more pronounced in the 2020 election year.

Active Deal Due Diligence Request

Once the closing process begins after a Letter of Intent has been executed, the transaction enters the due diligence phase. At this time, typically Buyers will request 3 years of historical financial statements. While this is standard operating procedure, we are now seeing Buyers asking for revenue numbers for the years 2007 through 2010. This has never occurred before and the only logical reason for these requests is that Buyers are concerned about another down turn.

Credit Card Debt

Personal credit card debt is now at record high levels. Americans had $1.03 trillion in outstanding revolving credit in March 2019. This beats the previous record in April 2008, when consumers had a collective $1.02 trillion in outstanding credit revolving credit. If credit card debt is, to some degree, driving the consumer economy, it has to end at some time.

National Debt and GDP

For the first time in history, the national debt exceeds the GDP. This didn’t even occur in 2008 to 2009 during the “Second Great Depression”. National debt is 109.73% of gross domestic product. We literally owe more than we are making…how long can this last?

Taxes

We’re running a $22 trillion national debt and growing daily. The average debt per household is $65,120.00 while the median income per household is $59,055.00. The new tax reform and reduction bill of late 2017 will decrease revenue to the US Treasury in the short term. The gamble is the tax reduction will stimulate the economy and increase revenue for the US Treasury in the long term.

Interest Rates

We have had 8 interest rate increases since January 2017. Most of us in the M&A world are always concerned about rising interest rates and their downward effect on the value of private companies. On July 31, 2019 the Fed actually decreased interest rates. This is the first time interest rates have decreased since 2008. Even with record low unemployment and a record high stock market, the Fed is concerned about the economy slowing. Take advantage of this window of opportunity.

Longest Bull Market in History

We are currently in the longest bull market in history. But, as we predicted, some volatility and correcting started to occur in 2018. This was driven by the specter of increasing interest rates, fear of inflation and the prospect of tariffs triggering a trade war with China. It seems the market has settled down for the moment but PE ratios are at record highs. Nothing lasts forever.