M&A Trends, Valuation and Financial Preparation for an M&A Deal

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M&A Trends, Valuation and Financial Preparation for an M&A Deal

  1. 1. 2011 M&A Update for Growth Companies  October 20, 2011
  2. 2. MARKET UPDATE 2
  3. 3. Emerging Growth & Middle Market Small  LargeCompanies Middle Market Companies P O P U L A T I O N 5.4MM  300,000 2,000 G D P 15% 40% 45% V  A  L  U  A  T  I  O  N 2‐3x 4‐11x 12x + 5 150 500 1,000 Revenues ($millions) Source: Middle Market M&A (2012) 3
  4. 4. A Macro ViewS&P 500 Public Markets Flat for the Last 10 Years 4
  5. 5. PEGs Are Flush$160 $155.53  $490.26  $500$140 $450 $130.05  $400$120 $350$100 $96.18  $300$80 $250$60 $200 $44.19  $150$40 $36.10  $100 $17.87 $20 $50 $7.73  $2.62  $0 $0 2003 2004 2005 2006 2007 2008 2009 2010 Vintage Year Cumulative Overhang Under $100M $100M‐$250M $250M‐$500M $ in Billion $490 + Billion of Dry Powder Source: Pitchbook.com  5
  6. 6. PEG Deal Flow $250 900 798 725 751 742 $207 719 800 $200 648 650 700 609 613 593 521 600 $150 $144 $129$124 429 438 500 $119 526 403 394 393 388 352 326 373 321 400 $100 $76 $71 $76 300 $58 $65  $50 $42 $38 $40 200 $26 $26 $32 $28 $19 $15 $18 100 $8 $11  $‐ 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 2006 2007 2008 2009 2010 2011 Capital Invested ($B) # of Deals Closed Source: PitchBook 6
  7. 7. PEG Industry FocusSource: Robert W. Baird & Co., M&A Market Analysis 2011 7
  8. 8. Corporate Cash to Invest$1.8+ Trillion in Cash on the S&P 500 Balance Sheets 8
  9. 9. Corporate DevelopmentSource: Deloitte Survey 2010 9
  10. 10. General Factors Affecting the Market ? ? ?Source: Robert W. Baird & Co., M&A Market Analysis 2011 10
  11. 11. Global Market Activity 11
  12. 12. Cross Border Deals 12
  13. 13. Add‐on’s Increase2,500 50% 48% 48%2,000 46% 43% 44% 1401 42%1,500 42% 1229 40% 1020 9571,000 37% 38% 874 669 36% 620 520 500 934 34% 408 722 313 560 648 399 508 140 32% 298 383 181 185 129 0 30% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*Source: PitchBook Add‐on Non Add‐on Add‐On % of Buyout 13
  14. 14. PEG Multiples  8.0  7.5 TEV / EBITDA TEVs of $10‐250 millionTotal Enterprise Value (TEV) / EBITDA  7.0 Total Enterprise Value*  6.5 $10mm to $25mm $25mm to $50mm  6.0 $50mm to $100mm $100mm to $250mm  5.5  5.0  4.5 2003 ‐ 2006 2007 2008 2009 2010 H1 2011 Year of Transaction Closing Source: GF Data Resources 14
  15. 15. Broad Valuations  12.5 73  11.5 TEV / EBITDA  10.5Total Enterprise Value (TEV) / EBITDA 8  9.5 $1mm to $10mm EBITDA $10mm to $25mm  8.5 $25mm to $50mm $50mm to $100mm  7.5 $100mm to $250mm 1 $250mm to $1B  6.5  5.5  4.5 0 2006 2007 2008 2009 2010 H1 2011 Year of Transaction Closing *North American M&A targets of strategics and private equity investors 15
  16. 16. Other Factors / Drivers of M&A Activity for 2012• Likely change in effective taxes• Outlook for individual segments and markets• Need for PEGs to sell older vintage companies 16
  17. 17. The Drag on Growth and the Ability  to Get Deals Done• The bar is set high for target company performance• Relatively few high performers vs. available capital• Little cash flow financing for lower middle market  deals• Time to close• Lots of attention to emerging growth & middle  market companies• Widening Size Premium 17
  18. 18. Positive Deal Drivers• Strategics actively seeking growth w/o betting the farm• Target company performance improvements creating more  viable candidates• PEGs have time pressure to invest funds• Modest economic growth generally supports buy vs. build • Credit markets relatively open for larger middle market deals• Valuations are rebounding• Cross border interest• Lots of attention to the emerging growth & middle market  companies 18
  19. 19. VALUE GAP? 19
  20. 20. 20
  21. 21. Value Gap Survey 21
  22. 22. Value Gap Survey 22
  23. 23. The Value Gap “Most owners do not have a value creation framework” Rob Slee 23
  24. 24. $$ 24
  25. 25. Focus on Real Value Creation  …not just growth 1 Strategic Health (products, services, market position, etc…) 2 Management Team Strength (without the owner / operator) 3 Dependence on the Owner  4 Scalable Infrastructure 5 Capital Formation 25
  26. 26. Some Changes that Take Time• Develop and articulate a clear growth strategy• Measure your company’s performance as the  buyer/investors will ….GAAP• Assemble the right deal team• Organize and document your intellectual  capital and get ready for due diligence• Develop a strategy to maximize after‐tax  proceeds 26

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