Merger and Acquisition Deal Trends: 2018 Year-End Review

Posted on 01.23.19

Merger and Acquisition Deal Trends: 2018 Year-End Review

By Asif Charania, CPA/ABV/CFF, ASA | Valuation and Forensic Services Senior Manager 

2018 Year-End Review of M&A Market Trends 

Over the last five years, the M&A markets have been fueled by an increased access to capital and improving economic conditions.  Overall deal multiples have increased consistently over this period, despite some analysts having concerns that the markets may be facing a correction or a potential economic downturn. 


Common Valuation Multiples 

One of the most common valuation multiples includes MVIC/EBITDA.  MVIC is an acronym for market value of invested capital. EBITDA is an acronym for earnings before interest, taxes, depreciation, and amortization, and is also a proxy for operating cash flow.

Transaction activity and related deal multiples can vary greatly depending on the size of the business, economic conditions, industry conditions, interest rates, and political factors (i.e. political tensions between opposing parties). To gauge the state of the M&A markets, GF Data® provides transaction statistics on private equity-sponsored M&A transactions with deal values ranging from $10 to $250 million.  A summary of MVIC/EBITDA multiples by industry is detailed in the table below. [1]

 

MVIC/EBITDA Multiples by Industry
Industry 2003-13 2014 2015 2016 2017 YTD 2018 Total N =

Manufacturing

5.96.16.66.16.86.96.11286
Business Services6.16.16.47.37.47.06.4572
Health Care Services6.87.27.87.68.17.57.2284
Retail6.46.05.57.07.66.76.596
Distribution6.07.26.77.57.77.06.4304
Media & Telecom7.2NA6.46.68.25.07.149
Technology6.67.78.07.410.29.87.697
Other5.86.65.66.96.56.96.0325
N=       3013

                                                                                                                                    Source: GF Data ®

Please note: N for 2003-13 encompasses 11 years of activity.

As is indicated in the table above, EBITDA multiples ranged from 5.0x to 9.8x in 2018, with an average multiple of 7.3x.  Moreover, businesses in manufacturing, business services, health care services, and distribution comprised approximately 80% of the transactions noted above.  According to GF Data, growth in transaction multiples remained flat between 2017 and 2018 primarily due to concerns about economic cycles, interest rates, and trade policy.  While this trend may be concerning for some sellers, it remains a good opportunity for buyers.

GF data also notes that the level of debt financing used in acquisitions has trended downward from a peak of 4.4x (total debt/EBITDA) during the 3rd quarter of 2017 to 3.8x for the 3rd quarter of 2018.  While debt availability remains plentiful, acquirers are choosing to capitalize transactions more conservatively.

Proceed with Caution

The multiples noted in the charts above are based upon an average of several thousand transactions. Therefore, blindly applying these multiples to a particular business might not be appropriate.   However, these multiples may serve as a starting point for particular transaction, but will need to be adjusted for a particular company’s facts and circumstances (e.g., growth expectations, industry conditions, and overall company risk profile).

How Can Keiter Assist?

Keiter guides privately-held businesses in analyzing and coordinating all aspects of the transaction so that the results are most favorable. By working with clients at an early stage, we are able to understand their business and help identify specific needs. We help sellers in maximizing value and assist acquirers in ensuring the acquisition is a good fit for their organization and the owner’s goals.

Maintaining the structure of a transition so that it is tax efficient is one of our top priorities. Our approach minimizes net cash outflows for a purchaser and maximizes net cash received by a seller after taxes.

Through our relationships with investment bankers and other centers of influence, we connect clients with additional expertise in mergers, acquisitions, and divestitures.


If you are in need of business valuation services and are considering various experts, please contact your Keiter representative or the Keiter Valuation and Forensic Services team. We are here to help.

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[1] GF Data M&A Report – November 2018.  Conshohocken, PA:  GF Data Resources, LLC, 2018

The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.

Posted by: Asif Charania, CPA/ABV/CFF, ASA

Asif Charania conducts business valuation services for purposes of financial reporting relating to business combinations and goodwill impairment testing; litigation and shareholder disputes; estate, gift, and income taxes; mergers and acquisitions; employee stock ownership plans; transfer pricing; reorganizations and bankruptcies; marital dissolution; buy/sell agreements; and appraisal reviews. He has experience valuing complex securities such as preferred stock; convertible preferred stock; and employee stock options, warrants, and stock appreciation rights.

He serves clients in a variety of industries including technology, financial, construction, healthcare, retail trade, manufacturing, distribution, wholesale, government contracting, and professional services. Read more of Asif’s insights on our blog.

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