This may sound odd, given the global economic headlines, but M&A prices are up!
We are seeing deals in engineering services, IT services, software and professional services sectors internationally that buyers are paying more for target companies and we think there are three key reasons why.
3 Key Reasons M&A Prices are Up
Buyers are looking for growth
The first is that as the global economy is flat, buyers are looking for growth and M&A is a key source of new revenues and profits. In most sectors, buyers can see a solid history of growth and are comfortable in the outlook for the next couple of years. This is an especially attractive opportunity because companies and PE have large amounts of capital to deploy and are less keen to invest in organic (and potentially less reliable) investment projects.
Private Equity firms increasing involvement in deals
Secondly, Private Equity (PE) is an increasing presence in every sales process creating greater competition for strategic buyers. PE now work across borders, they have deep reserves and are also keen to make acquisitions to deploy capital. One aspect that is particularly relevant to some of our clients is that PE firms are competing for “platform businesses”. Platform businesses are the core investment that PE like to make before bolting on other acquisitions and so are harder to find and therefore even more valuable.
Debt is cheaper and more available than ever
The third key factor that we think is driving up prices at the moment is that debt is cheaper and more available. Coverage of debt being cheaper is well known but the opportunity for buyers to source debt from new funds and deal-by-deal lenders is enabling higher leverage at low interest rates, which helps increase prices while maintaining ROI.
The other benefit for most sellers is that while business in most sectors is healthy and profits and revenues are strong, buyers are basing their multiples on higher results and so sellers get a double uplift in valuation.
If you would like to discuss how you can take advantage of this trend, please contact us at Eaton Square for a confidential discussion.
Eaton Square a cross-border M&A and capital services firm focused on services, technology and growth companies in the US, Canada, Australia, Asia and Europe.