So, what is happening in today’s M&A market? The private equity buyers are extremely eager to invest their funds. There is still a large imbalance between the short supply of great companies available for sale and the tremendous buyer demand, primarily from the private equity market.

For many Private Equity Groups, it is a scary reality that they are running out of time. Why? In the United States, Private Equity Groups (PEGs) are collectively holding approximately $400 Billion of uninvested cash. That cash is on a time fuse.

While cash is king and having this war chest to fund opportunities is a great thing, it is creating two distinct challenges for PEGs. First of all, PEGs make money for their investor base by acquiring interests in great companies. Those investors have certain expectations of return on their capital. When PEGs do not or cannot invest their funds, the money in turn does not generate a sufficient return for investors. Secondly, many of the PEGs raised cash for their funds several years ago. Often when capital has not been deployed it will “expire” or need to be returned to the investors at a specific point in time. This is the real “time fuse” as PEGs may very simply have to return the money in the fund if they cannot find suitable investments.

So, what is happening in today’s M&A market? The private equity buyers are extremely eager to invest their funds. There is still a large imbalance between the short supply of great companies available for sale and the tremendous buyer demand, primarily from the private equity market. Demand by PEGs or their desire to do deals has not diminished much during this recession, yet at the same time supply has severely dropped off. Very few companies are coming to the M&A market to sell or transition equity at this time. Some of this is driven by poor or week financial performance within a company due to recessionary pressure. For a struggling company, the M&A market will always be challenging. However, many other companies have weathered the storm greatly and the reservation in going to the M&A market has been psychological. The business owners are under the assumption that it “just can’t be a good time with everything going on.” This is a false assumption and those business owners are missing a huge opportunity to take advantage of the current M&A environment.

Quality deals are seeing unprecedented demand by PEGs. These groups are eager to pursue quality transactions, and valuation multiples have not fallen from their peak highs in these instances. Additionally, in the middle market arena, lender financing is either still available or there are other creative financing options that still allow a transaction to work.

There is an anticipated backlog of supply (or companies) building as the business owners overcome the psychological hurdles. As a business owner, where do you want to be on the time horizon as the supply and demand imbalance begins to level out? If your company is performing well and you have ever considered diversifying your wealth, the M&A market is waiting for you. Just keep in mind that the PEGs have the time fuse and it is your advantage.