Deal Makers from around the Americas got together at the Metropolitan Club in Manhattan to discuss the degree to which M&A markets have changed and are likely to change, given the recent and primarily negative changes in external economic factors. A few key takeaways included:
Growing political risk in Latin America will increasingly drive investment capital toward US-based targets.
Buyer emphasis has changed, even in the tech space, from growth to profitability. While some used to say that businesses in their sector were valued on revenue, very few people still say that across any industry.
Private equity buys using capital that was committed to them three years earlier. Despite the macro environment, their capital providers are not asking to revoke their commitments. The money remains in the “dry powder” pile. Furthermore, the management teams that run private equity are in the timelines to invest that money. Their hands are tied. They can’t sit on it and wait to see what happens.
There is much discussion about the effect of interest rate increases on business valuations (because buyers typically use a significant amount of debt to come up with their cash at close). However, the debt they use is almost entirely acquired at floating (not fixed) rates. And the investors are intelligent. They say the rate hikes are coming when or before we all did. As a result, the adjustments have primarily worked through the system through deals in the last 18 months. And the effect was much less significant than the conventional wisdom expected.
While valuations have likely peaked, what the panelists across the board have seen so far is a pullback in the volume of deals rather than the valuations on the deals. The competition remains fierce, but the sell side does have to work harder than what was the case two or three years ago.
Pictured Below: Benchmark International's Managing Director, Clinton Johnston, moderating the panel of professionals on the topic of Changing Private Equity Behavior during the Global M&A Network Conference in New York City
Africa: Anthony McCardle at +27 21 300 2055 / McCardle@BenchmarkIntl.com
ABOUT BENCHMARK INTERNATIONAL
Benchmark International is a global M&A firm that provides business owners with creative, value-maximizing solutions for growing and exiting their businesses. Benchmark International has handled over $8.25 billion in transaction value across various industries from offices across the world. With decades of M&A experience, Benchmark International’s transaction teams have assisted business owners with achieving their objectives and ensuring the continued growth of their businesses. The firm has also been named the Investment Banking Firm of the Year by The M&A Advisor and the #1 Sell-side, Privately Owned M&A Advisor in the World by Pitchbook’s Global League Tables.