Mergers & Acquisitions - 2019 Mid-Year Market Outlook

Excerpts from Gilbert & Cook's "Mid-Year Outlook - Plans, Priorities & Expectations in the Public & Private Marketplace" By Steve Jacobs

What is the status of the U.S. M&A market and what is the future outlook?

  1. Competitive environment and it is definitely a seller’s market, but buyers are doing more strenuous due diligence to make sure of what they acquire.

  2. Prices and multiples are high for quality companies due to lack of quality businesses on the market.

  3. PEGS and large corporates are willing to look at smaller transactions, actually making venture and angel investments to bolster R&D and technology.

  4. Cross border deals are down 50% from last year.

  5. Key reasons are unresolved issues like Brexit and trade policies.

  6. U.S. economy has been surprisingly resilient as we are experiencing our longest ever economic expansion of 11 years (but global growth has slowed).

  7. FACTSET U.S. MergerMetrics for trailing twelve months: 13,569 deals closed, up over 7% year over year.

What is impacting valuations in today’s market?

  1. Low interest rates.

  2. Banks hungry for earning assets (loans) – funding up to 50% or more of transaction value.

  3. Plenty of equity capital.

  4. Lack of quality companies on the market for sale.

  5. Strong buyer demand for growth via acquisition.

  6. According to Warren Buffet’s letter to shareholders the last 3 years, he shared, “Given the army of optimistic purchasers, price seems almost irrelevant.”

Read the full article from Steve Jacobs and BCC Advisors.

Trade Tensions - 2019 Mid-Year Market Outlook

On July 18th 2019, Gilbert & Cook hosted a Mid-Year Market Outlook luncheon and panel discussion.


(Moderator, Brandon Grimm)
Obviously there’s a lot of news right now about trade tension. So let’s put that into perspective from each of your respective markets. How is trade impacting your markets and what are some other disruptors that we might see?

(Response by: Dr. Keri Jacobs - Economist, ISU Extension)

As far as tariffs being put on goods, retaliation from china and then our subsequent retaliation. The biggest sectors for Iowa that are feeling the impact are soybean production and pork production.

There are short term consequences, outlined in the recent report released by the Center for Agricultural and Rural Development: CARD Report. This report states that overall losses in Iowa’s Gross State Product are calculated to be $1 to $2 billion. Short term losses are about 10% of the pork and soybean industries respectively.

Longer term, as this trade war continues and as other countries stop taking our goods, what happens is that the countries who can’t produce goods at the low cost that we can, now they have an opportunity to step into the market. The biggest challenge that we could face is some of those markets going away from the US. The longer term challenge is not the acute loss of trade, it’s the larger risk of losing our place in the trade market. If we are no longer the lowest cost producer and if we’re out of the game for some time, we could lose our seat at the table.

(Response by: Steve Jacobs - President, BCC Advisers)

From an M&A  perspective, supply chain disruption can be a key factor. Increase cost of sourcing good and shipping goods, make it very difficult for distributors and manufacturers to be competitive.

The US and China relations on trade seem to have taken another step backwards. But as long as businesses in this country remain profitable and we keep inflation under control, there should be no reason for the market to step back or near a recession.

(Response by: Chris Cook - Chief Financial Strategist, Gilbert & Cook)

If you remember for last year’s event, 1-year ago we were talking about trade in the headlines. Since our discussion last year, we’ve improved our relations with trade partners, Canada, Germany and Mexico, however hog and soybean producers continue to get a disproportionate backlash from the tensions with China.

I think back on a quote from Mike Pyle, and I’ll use his words, “China never intended to ‘Play Fair’ …. Their intention was to take the worlds technology, copy it and make their economy around it”. Is it worth the fight? In my opinion it probably is. Because if we can’t get paid for the technology that we develop in the United States, by the rest of the world, then we will slowly fade. That’s where I come back and say, “Is it worth fighting? Yes”. People that we know in Iowa, people that we share a state with are bearing the brunt of it and hopefully we make it through. On a big picture, it is a very small percentage of our Net GDP is being impacted dollar wise by the tariffs so far. It’s a net effect, a fraction of our GDP in our global economy. At this point we see no clear end, and we should expect it to continue to invoke volatility.