In the week following the presidential election, Bowman/Hanson received multiple calls from business owners curious to know what the election result would mean for the short- and medium-term M&A market. Unfortunately, we don’t own a crystal ball – but we can provide some practical advice to help mid-market business owners navigate through the next few years.
Many economists have already opined on the potential impact of the new administration. In our opinion, the impact on M&A starts and stops with the economy. Here, there are conflicting views. On the one hand, lower corporate taxes, less regulation, greater infrastructure spend, and repatriation of corporate cash might have positive short- to medium-term impacts on the economy. On the other hand, as Forbes so eloquently suggests, “trade retaliation is an economic death spiral.”
At Bowman/Hanson, we will be paying particular attention to international relations and trade. While the impact of changes to trade in the global economy may not have an immediate impact here at home, markets often react in advance of financial data. If we enter a time of prolonged uncertainty, private equity groups and lenders will pull in the reins on M&A activity. The corporate buyer will still consider acquisitions, but often at reduced valuations. Simply put: uncertainty equals risk – and for sellers, risk is the most significant impediment to liquidity.
So what can a mid-market business owner do in uncertain times? Below is a little practical advice to help you prepare for any changes in your specific industry.
- Get organized: Use the time between now and the New Year to review all of your business documents. If an opportunity comes along and you are unable to respond to due diligence requests, you may miss that opportunity. Is the ship in order? If the answer is yes, it will increase the likelihood of liquidity in a condensed timeframe.
- Revisit your key metrics: Pay close attention to your business’s health metrics. How early will you be able to detect changes that could negatively affect the health of your business? Are there new KPIs you should consider? And perhaps more importantly, how will you react to warning signs?
- Be proactive: Don’t live in the clouds – get out in front. Talk to your customers. Listen to what are they saying and be clear on how they are likely to respond in the event of a downturn. Are you one of their top priorities or lower down on the list? Sometimes people don’t want to ask questions for fear of what the answers might be … ask the questions anyway!
- Be prepared: Business owners are forced to make hard decisions during uncertainty. No one likes to cut costs or lay people off, but waiting too long can put the entire business at risk. Have a plan and revisit it monthly.
We at Bowman/Hanson have had a number of open conversations over the last week, and we’d be more than happy to discuss the new environment with you. We don’t have a crystal ball, but we do live by the adage “failure to plan is planning to fail.”
Don’t hesitate to call, we are happy to support you through this critical thinking phase.
Sincerely,
Kris Karlson
President
Bowman/Hanson