Family business outlook for 2017

By Christian Schiller

Market factors signal peak M&A activity in the coming year.

Mergers and acquisitions deal volume hit an all-time high in 2015. While mega-cap deals slowed in 2016, it is reasonable to anticipate that 2017 will be the apex of M&A activity for middle-market, family-owned businesses.

If you own a family business in the U.S. and are considering a sale, 2017 is the year to take advantage of a unique point in time, one that is expected to combine peak valuations and material reductions in taxation.

We are seeing some of the highest middle-market company valuations in our careers, demonstrating the market’s confidence in family businesses’ growth prospects and these companies’ anticipated value-add to acquirers.

Family-run businesses should also take note of an incoming Congress that intends to make meaningful changes to tax policies in early 2017. Decreases in corporate and capital gains taxes, and the introduction of incentives for repatriation of foreign earnings, are expected to benefit businesses and act as a catalyst for further increases in deal activity.

However, while 2017 looks to be a very positive year for M&A activity, it would be unwise to ignore other threats that are likely to emerge in the years to come. These include the rising costs of capital, expected strong economic growth (which may dampen buyer interest if organic growth becomes more realistic) and a decrease in interest from foreign buyers, given a strengthening dollar and increased geopolitical uncertainties. We are in “extra innings” of the M&A peak, and it is clear that there will be a transaction cycle downturn at some point again.

Business owners currently considering a deal should look to act in the year ahead, taking advantage of top dollar values before longer-term threats materialize.

A key driver of M&A activity over the past few years has been the abundant availability of debt, a result of high levels of liquidity and low interest rates that have made deal financing affordable. This is likely to change later in the new year. Federal Reserve guidance and market reaction are now indicating that interest rates will likely continue to rise, which will increase the cost of capital for buyers and likely result in decreased valuations and deal volumes.

Sluggish economic growth has also stimulated M&A, as companies struggling to grow organically augment their efforts through acquisitions. Many economists are now predicting that the incoming administration will spur economic growth, thanks in part to deregulation and infrastructure spending. If companies increasingly begin to experience significant organic growth, it is reasonable to assume they will be less interested in making costly, time-consuming strategic acquisitions.

Finally, foreign buyers have been aggressive acquirers of U.S. middle-market family businesses, but may be deterred in the years ahead. An increasingly strong dollar, coupled with the possibility of protectionist trade policies, could decrease their appetite for U.S. acquisitions.

With these longer-term deal deterrents, U.S. family businesses should feel confident that 2017 is the optimal time to assess potential sale opportunities, particularly given that there is likely to be more risk associated with waiting. Peak valuations, low cost of capital and expected changes to the tax code will likely make for a robust deal environment.

If your family does not want to sell its business, 2017 will also continue to offer many attractive opportunities for private equity recapitalizations, debt recapitalizations or other partial liquidity options that might be worth considering because of peak valuations and likely advantageous changes to corporate and personal tax rates.

Christian Schiller is a managing director at Cascadia Capital, where he leads the firm’s family business efforts. Cascadia Capital is a middle-market investment bank, serving both public and private growth companies globally (

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