On May 5 I attended an event hosted by BNY Mellon and the speaker was their Director of Investment Strategy, Jeff Mortimer. Jeff presented his “Wheel,” which in simple terms tracks economic cycles by where on the wheel we are in terms of time.
He stated the economy is now at 10:00, moving from worry to greed, with 12:00 being the peak. We’ve seen increasing profits, capital expenditures picking up and indications interest rates and inflation may rise. When it comes to the stock market he states we’re getting close to the time to sell, because soon all the novice investors will hit the market, meaning the market has peaked.
When it comes to my small world of small business buy-sell, he said if he was a business owner considering selling he would do so in the next year or so because multiples (of profit, the same as the price-earning ratio) are going to decline. (He thinks the peak will be sometime in 2017, which makes sense as things are always a bit unsteady after we change presidents.)
There has been a “feeling” in the M&A world that the proverbial “bubble” is going to deflate (not necessarily burst). To me, Mortimer’s study of the economic cycles over the last 50 years lends some credence to these thoughts.
Here’s the thought process of future business sellers.
- Yes, I want to retire, need to retire, I’m burned out, etc.
- The Great Recession, what recession?
- Business is good, it will always be good.
- I’ll just reap the profits for a few more years.
- My business is special so buyers will pay a premium at any time.
Time to get back to reality. Now may be the best time to take action, unless you want to wait another 5-7 years for the cycle to return (and hope interest rates are still low).
“You should always leave the party 10 minutes before you actually do.” Gary Larson
