You would have to be completely unplugged from the media if you have not seen multiple headlines over the past few years profiling mergers and acquisition activity at record levels and record valuations. According to the Institute for Mergers, Acquisitions and Alliances, United States M&A volume as measured by transaction value was over $1.9 Trillion in 2018 up from almost $1.8 Trillion in 2017. Year to date through May, 2019 there was approximately $800 Billion in transaction value. 2018 Middle-market M&A volume in the U.S. hit $427.9 Billion up from $372.7 Billion in 2017.
Valuations are experiencing record levels as well. U.S. private equity backed buyouts were executed at an average EBITDA multiple of 11.6x in 2018, down a bit from the 11.9x multiple in 2017, but still above the average post-financial crisis multiple of 9.9x (2010 – 2016).
- Private capital dry powder is approximately $2 Trillion;
- Private debt funds (non-bank, private lenders) have over $300 Billion of dry powder; and,
- Corporate America is holding almost $1.7 Trillion of cash.
Working with middle-market companies, our investment banking teams at Evergreen Advisors Capital are consistently interfacing with private equity and strategic buyers and our activity levels and outcomes are reinforcing the statistics and anecdotal evidence – It is a great time to be a seller. Across several industries such as business services, software, healthcare, cyber, government contractors, and diversified industrials, we are seeing strong, consistent interest in our sell-side mandates from both financial and strategic buyers. That being said, it is not a one size fits all market. To ensure success and best manage time and resources, entrepreneurs considering liquidity alternatives need to access and evaluate the appropriate audiences for their particular fact pattern.
Scale continues to be a factor in generating interest from strategic buyers. During more than one sell-side engagement, we have seen potential strategic buyers show initial interest in a target only to back away when a higher priority (i.e. larger target) opportunity became available. Even though we found other buyers, the message has been clear that corporate America’s human resources are constrained when it comes to M&A causing transaction timelines to stretch a bit. We have been successful in guiding middle-market companies that may be sub-scale to larger strategic buyers, in generating interest from smaller strategic buyers that are backed by private equity. In almost all of these PE-backed strategic transactions, we encountered a counterparty that was able to act quickly and decisively, generating a great outcome for our client. [Read more…]