Act like a pirate: Business owners acquiring top talent through acquisitions
December 6, 2017
• Due to tight labor market
• “Talent scarcity is driving M&A activity”
More than half (55 percent) of business brokers and advisors surveyed expect the shrinking labor market will cause more business owners to expand through acquisition, according to the third quarter Market Pulse Report published by the International Business Brokers Association, M&A Source, and the Pepperdine Private Capital Market Project.
With a tight labor market and unemployment rates at pre-recession levels, the challenge to find strong talent is good news for the M&A market.
The report reveals an uptick in activity by private equity and strategic corporate buyers compared to last quarter indicating a strong demand for add-on acquisitions.
“Talent scarcity is driving M&A activity,” says David Ryan, an advisor with Upton Financial Group. “For businesses looking to grow, acquisitions present an efficient way to secure a trained and established labor force. When we talk to corporate M&A teams, we increasingly hear that talent acquisition is a key part of their strategy.”
A tightening labor market could help spur the Federal Reserve to raise interest rates, with another rate increase anticipated this December. Nearly half (49 percent) of the advisors surveyed say the potential for rising interest rates has buyers and sellers pursuing aggressive timelines, hoping to get deals closed more quickly while financing is cheaper.
Meanwhile, most advisors (81 percent) say that uncertainty over President Donald Trump’s tax plan is having little impact on M&A activity in the Main Street and lower middle markets, which represent deals valued under $50 million.
“Tax uncertainty has hit the larger M&A market, as U.S.-targeted deals fell to their lowest rate since 2013,” says Craig Everett, director of the Pepperdine Private Capital Markets Project. “Despite this uncertainty, small business sellers are maintaining a ‘business as usual’ approach when it comes to M&A tax issues. So far President Trump’s efforts to reduce regulatory tax burdens have only provided clarity around taxes that support family succession plans. This is important for family-owned businesses and I expect additional tax reform will increase buyer demand and strengthen the M&A market.”
According to the report, seller market sentiment is positive, reaching an all-time high in the $1 million-$2 million sector since the survey began in Q2 2012. For sellers, valuations remain a compelling reason to enter the market. Meanwhile, buyers are no longer up against peak market prices, making it easier to justify an acquisition. Year over year, the time to close a deal has shrunk in most sectors.