Welcome to the “Show Me The Way” podcast with David Seitter
In this episode, we take a step away from our usual format of hosting guests, as I, your host Dave Seitter, offer you a solo journey. As we near the end of 2023 and approach a new year, it’s a perfect time to reflect on the M&A landscape of this year and glimpse into what 2024 has in store for us.
Ep. 36 — Reflecting on the M&A Landscape: A Review of 2023 and Insights for 2024
In the context of succession planning, exit planning, estate planning, and M&A, 2023 started off slow. Uncertainty loomed due to various factors such as the stock market, interest rates, geopolitical tensions, and overall economic uncertainties. However, as the year progressed and tax returns and financial statements were finalized, a shift occurred. Late April marked the turning point, with a significant letter of intent received, leading to the closure of nine different acquisitions. The market picked up momentum in the latter part of the year, reflecting an overall improvement in the economy.
M&A Dynamics in 2023
Unlike previous years, cash wasn’t the primary mode of transaction. Equity rollovers and earnouts became prominent, shaping the purchase deals. Businesses and buyers increasingly utilized equity rollovers to bridge the valuation gap and align interests for future gains. Earnouts, which were previously used to involve sellers in the business’s future performance, began serving as a means to compensate for a shortfall in the purchase price. These shifts in deal dynamics highlight the adaptability and flexibility required in M&A transactions.
Looking Ahead to 2024
While we experienced a strong finish in 2023, the question arises: What does 2024 hold for us? Experts and publications provide mixed opinions. Some are optimistic and project steady growth, considering factors like IPOs, private lending, and a favorable deflationary environment. On the other hand, there are those who anticipate a plateau in growth, suggesting a need for cautious and balanced approaches. Although there might be uncertainties, the consensus is that we have better days ahead.
Factors Impacting M&A in 2024
As we navigate 2024, certain factors are expected to influence the M&A landscape. One vital consideration is regulation. The Corporate Transparency Act mandates compliance for all businesses in the United States, creating challenges for legal and accounting professionals and necessitating a keen understanding of government requirements. Another key factor is inflation, which calmed down in recent months and is expected to remain positively deflationary in 2024. While there might be fluctuations, a significant recession is not anticipated unless impacted by cataclysmic events.
Preparing Your Business for Success
Regardless of the economic outlook, it’s crucial to position your business for success. Planning for the eventual monetization event, whether through a sale, gift, or joint venture, is essential. Aligning with trusted business advisors and professionals will enable you to evaluate the readiness of your business and determine the best strategies. Evaluating the value of your company, analyzing cash flow, and exploring tax solutions are critical components for optimal decision-making.
Creating Your Success Roadmap
Designing a roadmap for success involves identifying your ultimate goal, formulating a methodology, and assembling a team of experts who can guide you through the process. Building this framework ensures you possess a well-rounded understanding of your business, its value, and monetization possibilities. Proactive planning allows you to optimize outcomes and address any potential deal-breakers that may arise. Remember, the process may be challenging, but deal fatigue is a natural part of the journey.
As we approach 2024, the M&A landscape presents abundant opportunities for businesses and owners considering succession planning, exit planning, or sales. By reflecting on the dynamics of 2023 and anticipating the key factors that will shape 2024, you can make informed decisions to navigate the evolving market successfully. Remember, staying proactive, seeking professional guidance, and planning for the future will empower you to achieve your goals and maximize the value of your business.
This podcast is provided for educational purposes. It does not constitute legal advice and is not intended to establish an attorney-client relationship. The recommendations contained in this podcast are not necessarily appropriate for every individual or business. In determining the best course of action, business owners should consult with an attorney on their distinct circumstances.