Contributor, Korn Ferry Institute
This Week in Leadership (Nov 29 - Dec 5)
Questions—and answers—about the Omicron variant's impact on organizations. Plus, critical year-end moves to boost your career.
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In any part of the world, a wide range of factors can dictate the economy. There’s the kind that makes headlines—countrywide elections, unexpected job data, market declines. Then there are the more subtle shifts, such as a commodity price hike rippling throughout several industries. And don’t forget one of the biggest factors of late: a midlife crisis wave.
I’m being serious. Demographics can fly under the radar of global analysis, but in enormous numbers, baby boomers and near-boomers are reaching an age when either retirement or their last major career shift is on the horizon. And in this case, it’s playing a role in what undoubtedly will be one of the bigger business stories of 2017—the year of the mergers.
All of which leads us to the tale of one 50-year-old Rob Edelstein of Danvers, Mass., who spent the last three decades as an entrepreneur in the lending business. “I started in mortgage banking when I was 20 years old and did summer intern work,” he says. Soon after that he became a loan officer and then set up his own business, which he would later sell, before setting up more lending firms.
Now at the half-century mark, Edelstein has a new interest that may lead him to sell his current company: medical marijuana. He says the plant, prescribed by a doctor, gave a friend’s son who has brain seizures some much-needed relief. “That’s the passion behind why I got involved,” says Edelstein.
It doesn’t take a genius to realize that the world is probably now full of lots of Edelsteins. In fact, if he does sell out, he would be part of a theme of growing mergers and acquisition activity across the world.
After a respite last year, deal-making desires shot up in 2017. In the so-called middle market, companies with revenues between $5 million and $2 billion, 53 percent of potential sellers said they were “currently involved in or open to making a deal this year,” according to a recent survey from Citizens Bank. That’s up from 34 percent in a similar survey the year before. Likewise, on a much bigger scale, corporate deal-makers got off to a cracking start this year in January and February, with $504 billion of deals announced—the third highest since the financial crisis and just a hair (less than 3 percent) behind last year’s first two months of $516 billion, according to data from Dealogic.
Large conglomerates, of course, have reasons of their own for merging. The so-called repatriation tax proposal in the United States, for example, may affect many. Others continue to struggle to find ways to grow business in such a tight money environment. An M&A allows companies to add revenues instantly.
But whether it’s a major factor or not, the fact that the whims of a cohort of gray-haired folks can have an impact proves how easily human elements play into global markets. “The concept of fatigue is more pronounced than in the past,” says Bob Rubino, head of corporate finance and capital markets at Citizens Bank. Or put another way, there is a generation that’s ready to put their feet up.
Naturally, there are financial incentives, too. Business valuations are higher than they were a year ago. Last year, half of the potential sellers Citizens Bank surveyed were concerned about whether they’d get fair value for their business. Only a third were worried this year. “Sellers recognize that the likelihood of being undervalued is low and their window of opportunity may be closing,” the survey says.
The only question now is whether all this M&A activity is going to be healthy. It can make economists nervous to think that millions of entrepreneurs who have established a measure of wealth and security may now risk some of that without the due diligence—or luck—that tracked their progress at a younger age. One only needs to look at how foolish an M&A can become on a much larger scale; remember the fiascoes that were AOL Time Warner and DaimlerChrysler? “During the most buoyant periods of M&A activity, business people have the tendency to shoot themselves in the foot,” says Robert Bruner, dean emeritus of University of Virginia’s Darden Graduate School of Business Administration, and co-author of the aptly named book, “Deals from Hell.”
Of course, those deals are a far cry from someone selling a loan company to try a new medical treatment business. For his part, Edelstein seems to be moving cautiously. “I won’t sell unless the price is right,” he says. Will everyone else be so wise? For now, we’ll cross our fingers.