by Paul Donnelly
Pursuant to our recent M&A transactions for Coil Partners (Crown Components and Industrial Valco) wherein both companies were acquired by strategic buyers, the valuation discussions with target buyers were less focused on the latest twelve months ("LTM") EBITDA and more focused on sustainable EBITDA and expected financial performance exiting 2022 and into 2023. This theme is consistent across most M&A transactions in this current environment in which sellers' business models during 2021 and 2022 were positively/negatively impacted in the aftermath of the pandemic, supply chain disruptions, and emerging inflation.
In prior M&A seasons, valuation metrics were often tied to a multiple of the sellers' LTM EBITDA. But now, buyers are focused on ascertaining sellers' sustainable EBITDA or New Normal EBITDA - and then applying a valuation multiple. This dynamic combined with higher debt costs is contributing to the current M&A deal volume softness. However, don't be surprised to see a strong rebound in deal volume entering the 3rd and 4th quarter of 2023 as we gain better visibility as to the New Normal, and impatient buyers flush with capital run out of patience.
So what does this mean for Buyers and Sellers...?
Buyer REALITIES:
Ample capital - albeit more patient - available to deploy for acquisitions
Growth through acquisitions versus organic growth still the preferred growth strategy
Raising the performance bar for revenue growth and margins for target acquisitions
Sustainable EBITDA and projected “New Normal” EBITDA are key valuation metrics
SELLER REALITIES:
Sellers who experienced the COVID bump in 2021 and 2022 need to deliver sustainable EBITDA in 2023, identified as the “New Normal”
Valuation multiples tied to EBITDA are down 1-3 turns, subject to industry sectors
Yes, higher debt cost does impact your valuation
Strategic buyers may once again take the top spot as the highest bidder, as Private Equity buyers experiencing higher debt costs take a more conservative view on valuations for acquisitions
COIL PARTNERS INSIGHT:
Quality companies with quality revenues, margins and growth prospects will always have buyers available to pay a good price
Markets matter: conditions, confidence and consensus are realities
If you are thinking of selling, you have likely already made your decision!!
COIL PARTNERS VALUE PROPOSITION:
$4.5 Billion in aggregate transaction value across 130+ client transactions
We provide sellers with a clear understanding of their range of value and the metrics that impact value
Our team understands how to identify and leverage sellers' value proposition to target buyers
We have a successful track record of transaction closings at or above expected seller values through proper positioning and a customized transaction process that leads to buyer engagement and well informed buyer offers with low closing risk
Deal Experience Through MARKET Cycles
Paul Donnelly and the Coil Partners team have executed over 130 transactions through all stages of market and economic volatility. We specialize in delivering corporate finance advisory and investment banking services to emerging growth and middle market firms. Thanks to our extensive industry experience, we have the expertise to close the most complex of deals. Over the years, Paul and the Coil Partners team have completed over $4.5 billion in transaction values.