Why 2021 Is A Seller’s Market

A Seller’s Market Versus a Buyer’s Market

In a seller's M&A market, excess demand for assets that are in limited supply gives sellers more power when it comes to pricing. Such demand can be generated and galvanized by circumstances that include a strong economy, lower interest rates, high cash balances, and solid earnings. Other factors that can instill confidence in buyers—leading to more bidders willing to pay a higher purchase price—include strong brand equity, significant market share, innovative technology, and streamlined distributions that are difficult to emulate or recreate from scratch.

When the market conditions shift from favoring sellers to favoring buyers, purchasers have the upper hand in price negotiations. This occurs when market changes result in increased supply, decreased demand, or both. Increased supply is typically a result of the emergence of new sellers on the market, less demand for the business’s product or service, or production improvements that lower costs. Decreased demand is usually due to buyers pulling out of the market, shifts in consumer priorities, or more availability of other products or services that do the same thing.

Why the Time is Now

As a business owner looking to sell your company, you will want to beat any wave of similar businesses being brought to market, so it is important to keep your eye on the M&A market conditions. 2021 is expected to remain an active seller’s market, creating powerful opportunities for you to capitalize on a deal and get maximum value for your business.

If your company is performing well, you will have an upper hand. And even if your company has experienced some setbacks due to the COVID-19 pandemic, you may still be able to attract buyers that are flush with capital. Yet, keep in mind that many sellers are jumping to get their businesses on the market this year—and not just because it is a seller’s market. Many owners in the U.S. are trying to get ahead of potential corporate and capital gains tax increases that could come in 2022 under the Biden administration. And many Baby Boomers are looking to exit their companies, especially those that are fatigued from fighting to keep their businesses alive throughout the pandemic. As more sellers flood the market, it creates more competition for your business in a sale.  

Currently, there are several factors that are contributing to a seller’s market. Interest rates are low. Investors (both strategic buyers and private equity) have been sitting on tons of dry powder and are eager to make up for lost time. Stock markets are up. Demand is high. Large corporations that have strong balance sheets are looking to diversify and digitize. Confidence levels are high in the boardrooms. And the end of the pandemic is in sight, as vaccine distribution continues. Of course, deal terms are subject to vary depending on the company and the sector. Sectors that are poised to continue to lead the way in M&A are technology, media, and communications; healthcare and life sciences; business services; and defense and government contracting.

This is a highly promising market, so if you are looking to sell, there may be no better time than the present to get out there and drum up a high valuation for your company.

M&A Deal Momentum

M&A deal activity slowed in the early half of 2020 due to the pandemic, but it rebounded in the second half of the year.

So far in 2021, we have seen M&A deal momentum carry over from the end of 2020, a trend that is expected to continue, with deals meeting or even exceeding the levels seen in 2018 and 2019. Every time there is an economic recession, both deal value and volume decrease during those years. In the years following a recession, as recovery occurs, deal value and volume increase accordingly. Of course, there is always a level of uncertainty when it comes to recovery cycles. The economic expansion that began in 2009 remained strong over the next 10+ years, making it the longest expansion since before the U.S. Civil War (which took place in the 1860s), with M&A reaching all new highs. No one can say with 100% certainty how long the current cycle might last, which is another reason you should act sooner rather than later if you are thinking about selling. No one wants to miss out on an opportunity to sell for more money. And as 2020 sternly taught us, you never know what could happen next.  

Ready to Sell?

As the M&A market has rebounded, sellers should work with an experienced M&A advisory firm to help them identify the right potential buyers and get the most value for their company in a deal. Our experts at Benchmark International are eager to discuss your options and uncover powerful opportunities for your success.