Through the first half of 2018, valuations for U.S. middle market M&A transactions remain at lofty levels, while overall deal volume was down nearly 14.5 percent compared with 2017. Despite lower middle-market deal volume, which is primarily the result of a scarcity of quality assets, the current M&A market is expected to remain favorable to sellers. This is due to unprecedented levels of purchasing power from both strategic and financial buyers, as well as an overall healthy economy.
As the economy and M&A market continue to benefit sellers within the U.S. middle market, one of the primary challenges faced by business owners, and in particular family-owned businesses, surrounds the challenges around transitioning the business to the next generation. According to the Conway Center for Family Business, more than 30 percent of family-owned businesses survive into the second generation, while 12 percent survive into the third, and only 3 percent survive to the fourth and beyond.
Developing a clear exit strategy is critical to a company’s sustained success, especially when succession to the next generation may not be a viable. When that occurs, a sale of the business to a qualified buyer that shares the same family values and culture can provide the family with a way to continue the viability of the business long after they are gone.
The benefit of transitioning the business through a controlled sales process is that it can provide professional representation in order to limit business disruptions and bring qualified buyers to the table, which could lead to a sale to another family-owned business. It can also satisfy the potential lack of a family successor by locating an additional partner or buyer for the business.
Al Melchiorre is president and founder and Evan Lyons is an analyst with MelCap Partners LLC. MelCap Partners is a middle-market investment banking advisory firm. For more information on MelCap Partners, please visit www.melcap.comor email [email protected].