Uncertain Times Create Opportunities for Agribusiness Owners
by Matt Gadow
When I’m asked for business plan advice, my goal is to ask leading questions, so business owners have a clearer path to the right answer(s) for them. Recently, I’ve heard more concerns about current market volatility. So, I ask: “If you prefer a calm market environment to make a critical decision, what will indicate that calm?” The replies are varied and often accompanied by a friendly smirk, but certainty and confidence are typically not demonstrated. This response includes business owners thinking about selling their businesses. A lifetime of work and many scars on the back created from up-and-down markets can result in decision hesitation.
The past 18 months have been filled with uncertainty. As business owners face a decision about selling their businesses, they wrestle with a variety of geopolitical factors that they perceive will affect the value of their businesses. However, after our review of our AgExcellence and CoExcellence member-businesses, most showed strong and steady performance in 2020, even after adjusting for any favorable Paycheck Protection Program impacts that may have assisted their financials.
Some owners see more risk than opportunity in uncertain times, but others see unique opportunity in volatile times. According to Woodruff Sawyer, a mergers and acquisitions (M&A) insurance firm, business sale transactions across all sectors were, as expected, very slow during the first quarter through the third quarter in 2020, but the fourth quarter bounced back with robust M&A activity. In our view, pent-up demand, large amounts of “dry powder” sitting in buyers’ bank accounts and a rush from sellers to avoid possible capital gains consequences of a federal administration change created a deal flow urgency that continues into 2021. That noticeable bump in deal flow has not quite yet been realized in all markets, such as ag retail, perhaps because some prospective sellers anticipated a peak profitability season in spring 2021.
Volatile markets and uncertainty create some windows of opportunity as many growth-focused businesses hit their stride and make game-changing shifts, possibly including a sale of their businesses to capitalize on market events. For many in the ag retail sector, the current year appears to be yielding strong operational performance and expanding margins with commodity price increases. There is usually no better time to consider a transaction than on the heels of a peak year when there is also pent-up demand for deals. Of course, there are always tax considerations as well, but we encourage owners to ask, “Am I more likely to pay a higher rate today or tomorrow?”
The “calm” needed is relative to each business owner. Work with trusted advisers who appreciate that perspective and offer objective, market-based insight to solidify decisions and achieve a top-dollar result.
Matt Gadow is with Farrell Growth Group, a leading agribusiness consulting and mergers & acquisitions advisory firm.
