There has been a lot of press in the past year about the high level of activity in the M&A world, much of which pertains to very large deals. We thought it would be helpful to give you our view from the Middle Market trenches. GBQ’s Transaction Advisory Services (TAS) group works predominately in the Middle Market which we would define for our purpose as companies in the $5.0 million to $2.0 billion revenue range.
GBQ’s 2015 TAS activity
2015 turned out to be the most active year to date for our TAS practice. We worked on nearly 100 transactions in various capacities, including:
- 15 assurance and tax due diligence projects (including quality of earnings reports in some cases);
- 14 ESOP formation projects;
- 18 shareholder valuations involving transactions;
- 35 purchase price allocation projects;
- 8 general buy and sell-side advisory projects; and
- 10 buy and sell-side advisory projects in collaboration with our alliance with Footprint Capital, LLC. This included seven successful sell-side closings in 2015 and three retained buy-side projects. We also entered 2016 with a healthy list of five active projects in conjunction with Footprint and a number more in the pipeline.
- Another exciting development in 2015 was entering into a strategic relationship with Corporate Value Metrics for use of their Value Opportunity Profile (VOP) program, which is a sophisticated tool to help companies analyze readiness and attractiveness in preparation for a future liquidity transaction. We did this in response to a growing number of companies retaining us to help prepare them for a liquidity transaction. We will be providing more information on VOP in future communications.
Tremendous M&A activity
A recent article by StreetInsider said that at least 60% of middle market companies are interested in M&A. It is a perfect storm on both the buy- and sell-side. Why?
- First, there is a huge supply of dollars looking for a place to invest…nearly $1.0 trillion by PE firms alone.
- There are over 3,300 private equity firms in the U.S., not to mention the huge number of corporations looking to do acquisitions.
- The low interest rate environment helps fuel transactions.
- On the sell-side, potential sellers know this is a good market to attract strong values and many do not want to face another potential recession, although most believe a downturn is still a number of years away.
- Buyers are looking to augment organic growth, expand geographically, enhance intellectual capacity and do it quickly.
- Many business owners are baby boomers and are now actively seeking an exit strategy that best fits their situation.
High valuations but very deal specific
Yes, valuations are high right now, but that can also be misleading. In a recent article by GF Data, they reported an average multiple of 7.1 in the third quarter of 2015 on 37 deals in the $10 million to $250 million enterprise value range. People throw around big multiples that they read about, but those usually pertain to larger companies with at least $5.0 million in EBITDA that are well positioned or have extremely attractive characteristics like certain SAAS companies. In reality, most business owners overestimate their value. It is important to know what your company is worth and know what you can do to make it more valuable. The answers often surprise business owners.
Click Download Article to continue reading.