#308: Quarterly Economic and M&A Market Update with ITR Economics, GF Data, and ButcherJoseph

QUARTERLY ECONOMIC AND M&A MARKET UPDATE

There’s a lot going on in the world today that could make a business owner feel anxious and question what to do next with their company. Should you sell your business? Acquire other companies? Reinvest? Play the long game and grow intrinsic value? What about the labor market, geopolitics, and supply chains, and their impact on my growth potential and future value of the business?

ANSWERS AND DISCUSSIONS TO ALL THE QUESTIONS ABOVE START IN THIS FIRST EPISODE OF OUR QUARTERLY ECONOMIC AND M&A MARKET UPDATE SERIES

They are going to be segmented into three sections. Below are each of the three organizations, the topics, and we listed the starting point for each segment - along with the main highlights - so you can jump to one section if you’d like.

View Section:

ITR Economics, Brian Beaulieu // 05:20

GF Data, Bob Wegbreit // 41:45

ButcherJoseph, Jeff Buettner // 1:19:30

First, you will get insights into the current macroeconomic environment, market trends and things to keep an eye on in the future; second, you will hear updates on the data behind recent private transactions, valuations, and deal volume and structures; and lastly, you will hear stories from people who are doing deals in the M&A market. This episode will be a bit longer because we had each organization give a bit about themselves, their company’s background, as well as where they get their information.

WHY ARE WE DOING THIS?

We want to bring to you resources - typically only accessed by people at the heart of private M&A deals and the capital markets - so you can make better decisions, grow the value of your company, and get where you want to go faster.

Middle- and lower-market privately held business owners (we’re defining that as around $2M to $250M in revenue) need more information–on the economy, capital markets, and the M&A market–that is timely, relevant, and useful to them. So many resources are spent gathering and publishing information that is geared toward the public markets, and we believe that privately held marketplaces need - and deserve - more attention.

//WATCH THE INTERVIEW ON YOUTUBE: Intentional Growth™ Podcast

What You Will Learn

ITR Economics, Brian Beaulieu // 05:20

The first segment (05:20) is from ITR economics where Brian Beaulieu goes over an analysis of current market trends and what to expect in the future as a business owner with consumer trends, increases in interest rates, and the predicted 2030 depression. Since 1948, ITR Economics has provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US.

How ITR Economics uses rate of change in their forecasts
The cause of business cycles and why people fear them because there’s no context
Why the bond market foreshadows high interests rates
ITRs insight to the 2030 depression and how to shift your mindset towards it
The consumer and leading indicator trends

GF Data, Bob Wegbreit // 41:45

In the second segment (41:45), Bob from GF Data, a data aggregator on private-equity sponsored M&A transactions with enterprise values of $10-250 million, talks about M&A data and trends as well as how much debt and how much equity is being placed in M&A deals. He gets this data from over 350 PE firms that have provided information on their acquisitions with over 4000 transactions reported.

Why - and how - GF Data tracks financial offers from private equity firms
Why 2021 was such a busy year for deals
How private equity is reacting to raising interest rates
Deal structure updates: insights on the mix of debt and equity from recent deals
Why logistics and labor is causing private equity to start to hesitate on doing deals

ButcherJoseph, Jeff Buettner // 1:19:30

Lastly, Jeff Buettner from ButcherJoseph (1:19:30), an M&A advisory firm, to business owners of middle market companies, discusses what buyers are doing today and how they are valuing their investments. He talks about why a buyer may hesitate on a deal and what business owners can do now to position themselves to a potential offer. ButcherJoseph delivers a full spectrum of options, including sell-side advisory, valuation advisory, ESOP advisory, debt & capital advisory, and fairness opinions.

The current climate of activity and valuations
What’s going on in the M&A market right now - are people buying?
How people are thinking about changes in corporate tax rates
The spread between the financial value and strategic value in buyer activity
Why strategic buyers are making acquisitions part of their growth strategy

// USE YOUR FINANCIALS TO CLARIFY A PATH TOWARDS A MORE VALUABLE BUSINESS: Intentional Growth Financial Assessment

Bio:

Brian Beaulieu has served as CEO and Chief Economist of ITR Economics™ since 1987, where he researches the use of business cycle analysis and economic forecasting as tools for improving profitability. Brian has shared his highly valued research results via presentations, workshops, and seminars in numerous countries to hundreds of thousands of business owners and executives for the last 38 years.

Prior to joining ITR Economics, Brian served as an economist for the US Department of Labor, where he worked on the health-care component of the Consumer Price Index. Brian has coauthored, with Alan Beaulieu, the books Prosperity in the Age of Decline, Make Your Move, and, for children, But I Want It!

Bob Wegbreit is the Executive Director of GF Data. He has held a variety of senior-level positions in operating, sales, and marketing in the printing and advertising industries. He has been a featured speaker on the state of the middle market at several industry events. He has held elected and appointed regional non-profit board positions and is currently the vice chair of the Montgomery County Redevelopment Authority Board. Bob has a B.S. from Boston University.

With over 20 years of valuation and financial opinion services experience, Jeff Buettner has provided valuation and financial advisory services for ESOP and non-ESOP companies in a multitude of industries. As a trusted financial advisor, Jeff has provided business and security interest valuations to stakeholders for a variety of purposes, including ESOP transactions and annual valuations, fairness opinions, solvency opinions, mergers and acquisitions, corporate planning, and financial recapitalization and restructuring.

Jeff served as a member of the Board of Directors of the National Center of Employee Ownership (NCEO), and is a member of The ESOP Association where he serves on the Valuation Advisory Committee. In addition to his professional memberships, Jeff has been a frequent presenter at local, regional, and national conferences.

Prior to joining ButcherJoseph, Jeff spent nearly ten years with Stout Risius Ross, Inc., where he most recently served as a Managing Director in the ESOP Advisory Services practice within the Valuation & Financial Opinions Group providing ESOP valuation and financial opinion services in a multitude of industries. Jeff started his career at PricewaterhouseCoopers before later joining a national valuation advisory services firm, where he performed and supervised numerous valuation and corporate financial advisory engagements.

Jeff earned a Bachelor of Business Administration degree in finance from the University of Kentucky and a Master of Business Administration from the University of Pittsburgh.

Interview Quotes:

07:48 - “We are totally independent. I don’t get paid any more or less–nobody on my team does–whether we are seeing a recession coming or a nice cyclical rising trend coming. We get paid for giving you the reality as we see it, as far out as we can see it.” - Brian Beaulieu

10:53 - “Always hire people who are smarter than yourself.” - Brian Beaulieu

13:29 - “Rate of change (we used to call it ‘pressure curves’ back in the old days) is simply looking at the latest aggregation of data–it could be one month, it could be three months, it could be twelve months–and comparing it to the same aggregation one year earlier.” - Brian Beaulieu

13:55 - “Trends don’t change direction on a dime.” - Brian Beaulieu

18:17 - “If they have money in their pockets, if they have a job, they can be depressed, pessimistic, say anything they want, but they’re going shopping because that’s what we do.” - Brian Beaulieu

27:40 - “I think it’s best to think about the 2030s with the realization that a lot of the trends that we have embarked upon are not sustainable.” - Brian Beaulieu

28:23 - “But as we continue to pile on debt, why would the world just continue to assume that are able or even willing to pay off this mountain on debt, that we can afford to do it?” - Brian Beaulieu

33:49 - “Don’t manage a business by headlines. Don’t manage a business by the first paragraph of the news story because that’s not where the news is.” - Brian Beaulieu

44:00 - “No one in the advisory world wants to say, ‘Your baby is not so hot.’ But they do want to say, ‘This is what market is.’” - Bob Wegbreit

50:51 - “We capture a lot of debt information: the amount of debt, senior debt, the subdebt piece that’s in there, the pricing of the debt… Because that really affects what the private equity groups are able to pay–not what they’re willing to pay, but what they’re able to pay.” - Bob Wegbreit

53:09 - “Buyers and rational and sellers are emotional.” - Bob Wegbreit

59:59 - “People had pretty much felt like the interest rate thing was going away but once you commit to getting the thing done, you want to get it done.” - Bob Wegbreit

1:26:29 - “I think there’s obviously less volatility in the private market because there are so many other variables that impact the public markets that really have nothing to do with the underlying fundamentals of the business.” - Jeff Buettner

1:27:16 - “When I think of fundamentals, I think of the revenue and the earnings profiles of these businesses. Cash flow! What’s transpiring with cash flow?” - Jeff Buettner

1:30:31 - “I think we’ll probably start to see that spread compress a little because there is, inherently, this dynamic where we are today in the macroeconomic environment and the inflation and the uncertainties around a potential recession on the horizon. There is, perhaps, a little bit more cautiousness built into those financial buyers than they may have exhibited before.” - Jeff Buettner

1:33:51 - “Here, today, even if things start to change and we start to move toward a more recessionary environment, I think there’s still going to be a lot of activity. We’re still seeing a very robust deal market. There’s still buyers that need to put that capital to work. They want to put that capital to work.” - Jeff Buettner

1:39:57 - “An ESOP, as an entity, is a tax-exempt entity.” - Jeff Buettner