Just heard the latest statistics from Capital IQ on how many acquisitions were done last year. Less than 100,000.
What that means to business owners is that only a fraction of companies get acquired.
Letâ€™s combine that statistical information with some other survey results. In Canada and the US there are about 3.6 million companies, with employees owned by people over 50.
When surveyed by PWC and the NFIB and CFIB about their exit plans, 70% of these 3.6 million business owners say they want to exit in the next five years.
Further, more than 50% intend to sell to an external buyer, such as private equity or another company.
So that means 1.8 million companies hope to sell. If we divide that number equally over the next five years that means there has to be 504,000 deals per year (3.6 million x 70% divided by 5).
Is that even possible? Could the number of deals grow from 100,000 to 500,000 next year and for each subsequent year?
Letâ€™s look more deeply into the problem. We talk to private equity groups and advisors who help buy and sell businesses regularly. We interview them for our membership site. And we ask how many businesses they look at, and how many of that group they actually decide to purchase.
Their numbers do not look promising. One group looks at 200 deals per year to find one acquisition. Another looks at 900 deals per year to find 3-5 acquisitions.
So the next obvious question has to be, â€śAre buyers not making acquisitions because they donâ€™t have the cash?â€ť
Apparently not. In private equity groups alone, there is $400 billion waiting to go into business ownersâ€™ wealth management account.
Strategic buyers, who make up the majority of most acquisitions donâ€™t have a shortage of cash either. But their buying activity has only just picked up in 2012.
So whatâ€™s at the heart of this imbalance between buyers and sellers?
In my latest interviews, the reason that bankers, private equity groups and strategic buyers all give me is exactly the same. They only buy 1 out of every 200 companies they look at because the company has not been made saleable. Meaning it would be impossible for the next owner to get the success that the current owner has. So itâ€™s a bad deal for the buyer.
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