The BC Journal

Blog August 2022

A Happy July and Mixed Signals

The Markets

The year-to-date (YTD) combined bond and equity market sell-off for the first six months is a rarity.  Historically, negative returns in both stocks and bonds, over six-month periods, has occurred only 4% of the time (observation period: 1926-2022).

That six-month episode is also characterized by larger losses compared to the historical averages: Stocks are down 20% vs. the historical average of 10.3%, and bonds are down 5.8% vs 1.6%. (Source: GS Investment Strategy Group, Datastream.)

Thankfully, July returns were positive, and the markets have moved off their lows. The following recap is as of the end of July.

Second Quarter Market Commentary

Repositioning and repricing for the future is what the market is in a constant process of doing. Reacting and adjusting to inflation, economic, and corporate data along with digesting the corresponding FED policy responses has all lead to significant volatility this year.  In fact, the level of this volatility has been nothing less than record breaking so far this year. As they say, records are meant to be broken, but we obviously prefer not to be breaking such ominous new ground.   

On January 3rd, the S&P 500 topped out at 4796. As of the close of the second quarter, the S&P 500 stood unsteadily around 3785. This represents a 21% retracement from its high-water mark at the beginning of the year. On June 13th, the S&P 500 (and several broad market indices) officially entered bear market territory (as represented by a decline in value of 20% or more). Now add that fixed income is having its worst year ever and it won’t surprise you to hear that 2022 is off to one of the most difficult starts we have seen in decades. 

#Finterms: Recession Defined: What is it and what does it mean?

Simply stated, a recession is defined as a significant, widespread, and prolonged downturn in economic activity.

Generally, a recession is indicated when there are two consecutive quarters of decline in a country's Gross Domestic Product (GDP) starting from the peak of expansion that preceded it.

Typical effects of a recession include declines in economic output, employment, and consumer demand. 

Though a recession may last only a few months, it is the economic recovery that may take as long as a few years to get back to the previous peak in the business cycle. 

The recovery can vary (longer or shorter) in different segments of the economy as a recession often does not affect all businesses, geographic regions and markets in the same manner.  In some instances, there are pockets of industry that are countercyclical and will not feel any effect of a recession, or may actually flourish during a recessionary period.

#finterms #recession #finance #markets


#Finterms: What Do You Need a Business Valuation For?

A business valuation has many applications, including serving as support for various financial and estate planning initiatives to strategic decision making. Very often, formal business valuations (also referred to as appraisals) are used as supporting IRS documentation when someone transfers or gifts assets to another party. They are also useful and often needed in the context of partnership or shareholder agreements, updating incentive stock programs and sale/succession planning, among other applications. They are many flavors of valuations, so it is critical to understand the basis and approach of the appraisal to ensure it is useful for the intended planning objective.

#finterms #businessvaluation #valuation #InvestmentBanking


#Finterms: What is the Difference Between a Business Broker and an M&A Advisor?

A business broker and M&A advisor are two professional service providers that can assist a business owner in selling their business. Both can be great resources to their clients, but there are differences in their respective approaches.

A business broker typically works with businesses that are worth less than $1 million - $2 million in value (e.g. main street businesses). They often post a business for sale on a listing services with a desired asking price for the business. Alternatively, a M&A advisor works with businesses in the middle or lower middle market - customarily with values greater than $5 million all the way in excess of $100 million.

M&A advisors run various sales processes, ranging from a direct negotiations to auction sale processes, but typically do not set an asking price and rather work with a targeted set of buyers to develop a competitive offer for their client.

There is no formal set process that either advisor type rigidly follows, but there are distinct differences in the client types, buyer groups, and sale strategies they employ and fit depends on a number of factors influenced by the selling business's profile and natural market.

#finterms #businessbroker #M&AAdvisor #M&A #InvestmentBanking