2012 Mergers & Acquisitions Update

Austin Buckett

Austin Buckett


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Every year brings about new expectations and hopes for the coming year, especially as it relates to the economy and business performance.  Given the past three to four years, it is about time we had something to look forward to. 

I recently attended the annual AM&AA winter conference to see what others in the M&A market had experienced in 2011 and were anticipating for the coming year as we roll into 2012.

The conference itself is attended by people from all over the country that work in the M&A middle market, defined as working with companies valued between $5m – $250m.  The attendees are comprised of Investment Bankers, Private Equity Groups, Attorneys and Advisors.

The overall theme of the conference for this year was ‘culture’.  In particular, the role a company’s culture plays into the success of a transaction and the valuation it attracts.  In summary, those with great cultures that are ready for a sale and can be easily handed over to a new owner will generate the most interest from a buyer.  Those that do not have good cultures or team members with good work ethics will likely be passed over from a buyer perspective or heavily devalued as buyers are becoming more aware and more sophisticated on the cost of trying to overcome cultural issues with new acquisitions.

 Below is a summary of the discussions and expectations noted during the conference:

  • 2011 Performance:
    • Deals done in 2011 were on a par with 2010.  While we are a long way from the highs of 2006 and 2007, it is encouraging to see deal activity stabilize and not retreat to pre 2010 levels.
    • Average deal valuation multiples remained constant in the $10m – $25m deal size range at 5.3 x EBITDA.  However, there was an increase in the overall middle market (deal sizes up to $250m) valuation multiples driven by deals north of $100m in deal value.
    • Debt multiples, the amount of purchase prices funded by debt, increased slightly.  Again this was at the larger deal level and was one of the reasons for increased valuations overall.
  • As we head into 2012, it is encouraging to see the larger end of the middle market generating increasing value and bank lending easing up on.  While this has yet to benefit the smaller end of the market, it is a good leading indicator and we expect these trends to continue moving downstream into 2012 and 2013.
  • Private Equity funds are still struggling to find quality deals they can invest in.  There is currently an estimated $450bn of private equity money that has not yet been deployed and many funds have moved downstream to look at smaller business, even those with EBIDTA of $1m are now getting interest from Private Equity Groups. We expect that Private Equity will continue this trend for the next few years as they try to put their money to work and justify raising additional funds in the future.

So is now the time to sell?  For most of our clients, we have yet to see a real uptick in the deal market that they would fall into and we anticipate the market improving over the next 12-24 months.  Therefore, we anticipate sellers being in a better market position towards the end of 2012 and into 2013.  However, given the buyers significant preference for well run companies we strongly advise anyone who is considering an exit in the next 3 – 5 years to really focus on internal improvements to make their business more attractive to a buyer.  

If you have any questions or would like more information on this subject please contact me at (719) 640-0831.

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