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Market Timing 4th Quarter 2018
Trump Bump Volatility?

... As we predicted, some volatility and correcting started to occur in 2018 so far. This was driven by the specter of increasing interest rates, fear of inflation and the then the prospect of tariffs triggering a trade war with China. Notwithstanding, PE ratios are still at record highs. The jury is still out on whether this market can sustain through these issues. Volatility is never good for the value of a private company.

Supply and Demand

... There are 15 million baby boomers that own companies. What happens when they all come to market? Supply and demand … you will get less for your company. In the next few years, experts believe there will be an $11 trillion wealth transfer to baby boomers.

PE Overhang

... Right now there is a half-trillion dollar PE overhang. Private Equity Groups have a half a trillion dollars to put to work now by buying companies.

Purchase Prices

... Strategic buyers cannot grow organically so they are buying private companies at record levels. Additionally, private equity buyers have such a great overhang; they are paying nearly as much as strategic buyers.

Taxes

... We’re running a $21 trillion debt and growing daily. The average debt per household is $65,120.00 while the median income per household is $59,055.00. National debt is 109.73% of gross domestic product. 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. No one knows for sure but the numbers are staggering.

Interest Rates

... In 2017 the Fed raised the short term borrowing rate 3 times. Last week, the Fed raised interest rates again and indicated two more increases are likely in 2018. Buyers acquire private companies by borrowing - from themselves or banks. Most of us in the M&A world are worried about consistently increasing interest rates and the effect on the value on private companies. The higher the interest rate, the less a buyer can pay for a private company like yours.

Geopolitical Events

... These affect our markets more so than ever. A war with North Korea or fighting in the Middle East around the Syrian situation that drags in Russia could put our markets in turmoil or recession for years.

Current M&A Activity

… The first half of 2017 showed an increase of 12% over the first half of 2016 for middle market companies. However, M&A activity in the $10 to $50 million dollar market has shown a decline of 2.5% to 5.2% LTM March 31, 2018 from March 31, 2017. Yet, we are not seeing a commensurate drop in deal value; yet.