What Will the Trump Effect Be on Small Business M&A?

Looking forward into 2017, the big question for Calder Capital and our clients is: will it be a good year for small business mergers and acquisitions or not? Can we expect the positive trend of the last few years to continue, or will changes in politics and economics have a stifling impact on M&A?

BizBuySell.com reported that 2016 was a banner year for small business sales, with 7,842 businesses sold. This number is better than the total for either 2015 or 2014, both of which saw record highs. Business brokers are very satisfied with 2016 and the present market, viewing “an improving small business environment, more owners looking to sell, more qualified buyers on the market, and better financing options” as serious advantages. Median revenue and median cash flow of sold businesses also went up, although sale prices remained stable. At this time the sale-to-asking price ratio is 92 percent. This is an indication that buyers and sellers are increasingly in agreement about what businesses are worth and their power in this market is becoming more balanced relative to each other.

Trump effect
Will Trump Cause More Deals or Will Sellers Hold Back?

Over the course of 2016 the average time it took to sell a business dropped 11.6 percent to 166 days, but an increase in listings in the fourth quarter of 2016 gives interested purchasers plenty of options to choose from going into the new year. As a result, business brokers are expecting sales of small businesses to hold steady or even improve in 2017 and are optimistic for higher sale prices and transaction numbers. When asked, nearly 60 percent of brokers expressed the opinion that the economy, influenced by President Trump’s policies, would encourage more buyers to enter the market.

At a recent panel, West Michigan brokers cited low interest rates, strong business performance, and a continuing stream of Baby Boomers retiring as further pluses.  This is in line with what the International Monetary Fund predicted last month: more economic growth for the U.S. economy in the next two years. Trump’s campaign promises included regulatory reform, tax cuts, and investment in infrastructure, all of which could have a positive impact on small business.

One legislative prospect that would directly affect planning for the future and, therefore, business sales, is Trump’s plan for a revision of the estate tax which would make only capital gains of more than $10 million subject to tax. Another possibility being put forth by the House Ways and Means Committee is the complete repeal of the estate tax. Either option would affect business owners’ ability to pass their businesses on to other family members.

Despite all of the positive news, Max Friar, Managing Partner of Calder Capital, cautioned: “The election of Trump  may have placed a temporary pause on Sellers’ decisions to move forward with the sale of their business. There are two reasons: 1) they are confident in an economic resurgence that will sugarcoat their bottom line; and 2) they are optimistic about tax reform, specifically reduced income tax rates related to the sale of assets taxed at regular income rates. Increased profits and lower taxes are major incentives for Sellers to delay the sale of their companies. I would caution Sellers from relying too much on hearsay. The buyer market is very frothy; we are seeing a lot of buyer competition in the form of multiple offers on companies. Now is certainly a great time to sell.”

If you are wondering how the market will affect your plans for the future or when you should beginning thinking of selling your business, contact Calder Capital today. We would be happy to discuss the current market, our sales successes, and the options available to you right now.

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