Navigating the Seller's Market: Achieving Accurate Valuations
April 10, 2015
PitchBook Dealmakers Column
It's a good time to be a seller. The M&A market is dominated by attractive, well-performing companies, which, among other factors, has led to transactions being bidded up to pre-recession multiples. Sellers are enjoying complete control, due to several key factors.
First, equity sponsors have significant dry powder, so when a strong transaction emerges, competition heats up, with price becoming a secondary factor in the pursuit. Second, financial institutions are being pressured to lend again, and are sitting on large pools of capital that need to earn returns. Thus, debt facilities for these quality deals are very competitively priced with pre-recession, covenant-light structures. Third, strategic buyers have managed their balance sheets effectively over the last two years and are flush with cash. When an attractive, synergistic acquisition presents itself, they are willing to pay a premium. Finally, sellers and their advisers are relying more than ever on auctions to market their assets, resulting in deals valued up to 8-10x EBITDA or higher.
PE firms looking at target companies must pay closer attention than ever to valuations. Is the industry growing, contracting or plateaued? How experienced is the management team? Does the target company have strong relationships with its suppliers, vendors and distributors?
Publicly traded companies are generally easier to value due to the higher quality and quantity of available information. However, the potential premium over current valuations must be considered, along with the possibility that the situation will be hostile. Privately held companies generally have less information available for analysis, and could have more complex capital structures. Furthermore, the final value of a closely held private business may differ from the result given by established methods of valuations, because various types of discounts or premiums to the basic valuation must be considered. In summary, accurately valuing an entity as a going concern is still an extremely challenging exercise, especially in the current market climate. The experts at Hilco Global can help you navigate through the process and provide timely and accurate valuations.
For more information, please contact Gary Epstein, CMO, Hilco Global, at +1 (847) 418-2712 or firstname.lastname@example.org
This article represents the views of the author only and does not necessarily represent the views of PitchBook.