Jack Bogle (https://www.npr.org/2019/01/16/686031022/jack-bogle-father-of-simple-investing-dies-at-89) was quoted as saying, “The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly fifty years in this business, I don’t know anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has.”
As an academic who studied investment finance at the University of Texas McCombs School of Business, I agree with the legendary Mr. Bogle that it is impossible to time the equity markets involving publicly traded companies.
I also agree with Warren Buffet (https://www.forbes.com/profile/warren-buffett/), as he conveyed to his shareholders in a letter, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Combining the collective wisdom of Warren Buffet & Jack Bogle, the conclusion is reached that you cannot time the market when buying a quality company.
Many investors and entrepreneurs have sat on the sideline in recent years due to the economic turbulence of the COVID-19 pandemic, inflation, and high interest rates. Caution is often prudent with capital, but it is also wise to consider the words of Robert G. Allen (https://www.allamericanspeakers.com/celebritytalentbios/Robert+G.+Allen/8686), “How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”
As an approximately, thirty-year mergers & acquisition intermediary, it is my opinion, as we close out 2023, that 2024 given an assessment of the risk and the current time & place dynamics presents a wonderful investment opportunity for individuals and companies acquiring privately held companies and family businesses in the Pacific Northwest. The following are five reasons I believe that is true.
- Interest Rates – The cost of capital is currently higher than any time I have experienced since selling my first company in 1994. The good news is that we appear to have reached the high water mark for interest rates and that they will be falling in 2024 & 2025 (https://www.businessinsider.com/economy-slowdown-interest-rates-outlook-federal-reserve-cuts-next-year-2023-11). Most business acquisition loans currently have variable interest rates that adjust based on changes in the prime interest rate. The high interest rates mean that during due diligence and bank underwriting, business acquisition loans will be stress tested at likely a higher level than reality will warrant post transaction.
- Labor – The unemployment rate is anticipated to increase approximately 1% over the next year (https://www.cbo.gov/publication/59431). This is good news for business owners as it will create more qualified candidates for available positions and reduce inflationary pressure on wages.
- Competition – New business startups were significantly down from Q1 2020 to Q3 2020 due to the COVID-19 pandemic (https://www.statista.com/statistics/771207/quarterly-business-starts-us/)
They have also been in decline since Q2 2022 due to the present high interest rates. This has resulted in less new business competition in the marketplace for existing businesses over the last three years. Combine this with that fact that over 20% of new businesses fail in their first year and almost 50% fail in their first five years (https://www.lendingtree.com/business/small/failure-rate/) there has not been a better time for established companies to thrive financially and pick up market share without threat from new competition since the Great Recession ended. It is anticipated that this competitive advantage will exist for business owners for several more years.
- Quantity of Quality Acquisition Opportunities – The age of a middle of the pack Baby Boomer (The generation born between 1946 – 1964), an individual born in 1955, will be 69 in 2024. That individual is already eligible for full social security benefits after they stop working and the maximum benefit possible, if they defer participation in the social safety net program until 2025 when they turn 70. The average business sale takes three to nine months for IBA, so Baby Boomers wishing to complete transactions and their post-sale transition training/consulting obligations in 2024 will be bringing their businesses to market early next year. It is anticipated that a significant transfer of ownership of privately held companies and family businesses will occur over the next ten years, as this generation leaves the work force in pursuit of travel, retirement, and grandparenting objectives (https://www.linkedin.com/pulse/booming-business-sell-off-exploring-surge-baby-boomers-mike-kelner/).
- The Pacific Northwest is a Strong Economic Garden – The economy of the Pacific Northwest is one of the strongest, fastest growing, and most diverse in the nation, if not the world. The region has three states in the top 12 in terms of GDP growth, with Idaho ranking #1, Washington #6, and Oregon #12 (https://www.usnews.com/news/best-states/rankings/economy/growth/gdp-growth). It is anticipated that this region will be one of the leading economic engines for the United States throughout this century. A strong regional economy is good for employment, real estate, and encouraging continued entrepreneurial activity.
IBA has been selling privately held companies and family businesses in Washington, Oregon, & Idaho since 1975. We have successfully completed over 4300 “win-win” transactions involving sellers & buyers. If you are interested in acquiring a business in 2024, we would welcome the opportunity to talk with you. We anticipate having a quality group of new businesses enter the market in Q1 2024. Parties who participate in our Buyer Database Program (https://ibainc.com/buy-a-business/) receive the first opportunity to evaluate companies exclusively represented for sale by IBA. 20 – 25% of IBA’s representation projects sell annually to participants in our Buyer Database Program.
Opportunity is missed by most people because it is dressed in overalls and looks like work. –Thomas Edison Let us know if you are interested in putting us to work in 2024 related to the sale of your business or acquisition of one of our engagements. We welcome the opportunity and promise a process employing best practices and integrity.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, real estate, legal, and accounting communities on subjects relevant to the purchase & sale of privately held companies and family-owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.