Market Conditions for M&A Transactions Are the Best Since 1999
by Scott Eisenberg, Managing Director, Amherst Partners LLC
The hardest segment of the Merger & Acquisition (“M&A”) market to obtain meaningful transaction data in terms of price and valuation metrics is the small-to-middle market. The 2004 International Network of M&A Partners (“IMAP”) Worldwide Transaction Survey Results provides such data. IMAP is a private network of M&A firms around the globe. With 60 member firms in 20 countries, it is the largest group of middle-market M&A firms of its kind and it surveys its members on the deals they completed to get a glimpse of current market data.
In 2004, IMAP members closed 190 M&A transaction, with a combined value of $5.8 billion. With an average transaction value of $30.54 million, almost half of the transactions were in excess of $10 million. Given limited disclosures, this represents the best data on values of closed transactions for this segment of the market that are accessible.
In North America, there were 94 transactions completed with a combined value of $3.6 billion. Multiples ranged considerably by industry. For a high-tech company with proprietary manufacturing, the top quartile of companies sold at a multiple of 21 times EBIT. Conversely, for distributors, the bottom quartile of companies sold at a multiple of 3.6 times EBIT. See Exhibit 1.
For a summary of the NAFTA results as part of our pricing survey, IMAP also surveyed its member firms on M&A trends. An overwhelming majority (approximately 75 percent) of IMAP members are seeing an increase in deal activity for 2005, with a slight easing of credit markets. For the transactions closed in 2004, the median equity from the buyer is 40 percent, and is anticipated to drop to 35 percent in 2005.
In Europe, there were 93 completed transactions with a value of over $2 billion. On an overall basis, the multiples paid for European companies were very similar to North American companies. Depending on the industry and level of proprietary capabilities, the general range was 4–10 times EBIT. The median multiple was 5–7.7 times EBIT. See Exhibit 1.
Our European counterparts are equally optimistic about the marketplace, with over 75 percent of member firms believing that there will be more buyers and sellers in 2005. Interestingly, the Europeans believe that transaction there will require 50 percent equity (versus 35 percent in North America).
For those in Michigan and Ohio, Amherst continues to see depressed operating results for manufacturing companies. For companies in the automotive markets, excess capacity, foreign competition and rising commodity prices continue to place huge pressure on profitability. It is also adversely impacting valuations of auto suppliers in the public markets, as well as in private M&A transactions.
The pressure and profitability of manufacturing companies, including those in the automotive market, have kept Amherst’s restructuring group quite active. As Amherst recently assisted a Chinese machine tool manufacturer in their acquisition of a German tool company, Amherst was reminded that the manufacturing consolidation is a global process and not limited to the local markets.