5 Key Factors Impacting the Sale of Your Business in 2024

M&A Outlook 2024: Reasons For Optimism?

If merger and acquisition activity seemed light in 2023, it was. Maybe in part due to so much uncertainty and, maybe, a little too much worrying. The experts said we were due for a recession, it never came. Experts said hiring would slow. It didn’t. And while we haven’t seen the Federal Reserve raise interest rates this fast since the Regan Administration, consumers shrugged off inflation and higher rates and opened their wallets. What do experts know.^1,2,3

Here’s the thing. There’s a lot of money out there, and money doesn’t earn its keep on the sidelines. It needs to work. That means growth, and that means acquisitions. And we believe that’s cause for optimism in 2024.⁴

Five Key Elements

A (slight) recession. The most predicted, anticipated, and talked about recession in history never appeared in 2023. It’s starting to look like the Fed is going to pull this one off, easing us back from high inflation with interest rate hikes and calming the economic engine. But there’s still a chance of a slowdown. Maybe not a big recession, but a cooling. A “soft landing” as it’s called.
Customer end-market. In times of uncertainty, or even “perceived uncertainty,” buyers on the hunt are looking for bedrock. Solid, dependable revenue. Who are your customers, and who are their customers? Proof of a sturdy base will be more important than ever.
Credit markets. Will there be liquidity? Last year’s banking situation at the regional bank level made some uneasy, and we’re seeing a bit of a hangover in regional banks. What will the Fed do next, and where will the money come from?
Dry powder. There’s a lot of cash on the sidelines, and no matter how cautious private equity managers may feel, their investors aren’t making money holding cash. Investors want someone to do something.¹
The U.S. election. We knew this was coming, but that doesn’t make it easier not knowing who wins the White House and controls the House and Senate after November. Wall Street and Main Street investors don’t like surprises.⁵

The Big Three (You Can’t Do Much About)

Start with the big points: the possibility of a recession; what will Fed chief Jay Powell do next; and what to think about an election with the potential for big policy shifts. Economists virtually promised a recession in 2023, but the economy chugged along. Today, we’re hearing in one recent survey more than 75% of economists say there’s a 50% chance of a recession in 2024. If we’re reading that right, it means they don’t know. But if the economy does stall, it may not be too damaging or lasting. A hard landing rips across all sectors, while a softer landing may only affect specific industries or situations. Intentional preparation can have us ready to ride out the bumps without significant damage.^6,7,8

As for interest rates, who can predict with 100% certainty. But the Fed is reportedly eying a cut by the end of the year, maybe down to about 4.5%, and observers are categorizing recent Fed remarks as “doveish,” signaling an end to rising rates. We feel the potential for cheaper money will grease the wheels and jumpstart deals. Now, even if the cost of borrowing goes down, there has to be money available to lend. We’ll be watching closely as total U.S. bank deposits have fallen off – nearly $900 billion year over year at last fall. Another concern is all that empty office space since workers started working from home during the pandemic. That’s a problem not only for big lenders – the banks invested in a suddenly struggling sector – but also for some big spenders, governments that depend on those skyscrapers for tax revenue and downtown shoppers and diners.^{9,10,11,12,13}

Elections? Nothing anyone can do about them. They’re coming, in the U.S. and in 76 countries around the world this year. We’ve seen elections impact M&A volume in the past, but aside from some volatility and the fear of the unknown as investors try to outguess voters, we don’t see any meaningful shift to the business landscape and policies until newly elected leaders take control in 2025.^14,15

Where You Take Charge

If three factors are (mostly) out of our control, what can we do? Be prepared. We’ve long felt business owners should devote just 10% to 20% of their time thinking about the big, macro, factors they can’t control. The rest of the time, they should focus on the things they can control. Stay focused on business growth and customers. Understand who you serve, and how they could be affected if that recession does arrive. If you’re in HVAC or appliances, for example, how does last year’s 30-year low in homebuying affect you? Think about what type of buyers tend to ride through recessions, such as aerospace and defense, infrastructure repair and maintenance, and healthcare systems fed by government and private insurance. Think of customers who serve solid client bases and are paid from stable, dependable funding sources.¹⁶

And we always recommend business owners crunch their own numbers regularly, being diligent as they document performance. Buyers aren’t buying today’s cash flow, they’re looking to the future. Show them a good investment. Measure and record growth, explore new areas and markets that will build the business. Uncover the diamonds that make your business stand out and polish them regularly.

M&A Market To 2024: Let’s Make A Deal

We believe, no matter what happens in 2024, there are buyers. Deals will get done, and anyone who waits for the “perfect” time never gets anything done. There’s always something to worry about. Private equity dealmaking dipped 40% in 2023, but there were still $846 billion in deals. PE is feeling the heat to get things done. The biggest PE investors are asking why they pay pricey management fees to funds that are sitting on their hands. By one estimate, 2023 ended with $2.6 trillion in PE capital on the sidelines, up 8% from the prior year, and investors are getting antsy. It may only take a deal or two to start a run. We’re already seeing a spike in deal value in early 2024. A single snowflake can trigger an avalanche.^1,4,17,18,19

When we look at the 2024 M&A market, we’re feeling good. And we remind every business owner to run the best business they can every day, document growth and profits, and prepare for an eventual exit, whenever that opportunity arises. More than 80% of business owners say they wish they had spent more time preparing for the exit. If someone offered to buy your business today, would you know – with absolute certainty – if the offer was fair? Because your future, and your family’s future, depend on that judgment. Most owners only get one shot. When it’s time to exit, we can help you prepare every step of the way, before, during, and after the sale.