“The pervasive sense of frustration among M&A professionals is lifting as they become increasingly occupied sourcing and evaluating potential deals,” said Dennis White, ACG Chairman and Senior Counsel, McDermott, Will & Emery LLP. “There is always a bit of a time lag between the time company owners decide to sell, when the investment bankers and business brokers organize the sales process, and when the private equity firms or strategic acquirers bid and then close the deals.”
The greatest drag on M&A activity today is sellers unwilling to sell at multiples offered, according to 38% of dealmakers. This is followed by the credit crunch, which has steadily decreased in importance as the biggest obstacle to M&A activity (27% today vs. 29% in December 2009, 33% in May 2009 and 43% in December 2008)
“An increasing number of business owners, who have the desire to sell but have held back for the last couple of years until the value of their companies rebounded, are again thinking of selling their businesses, especially if they can do so this year before tax rates potentially increase,” said Katherine Morris, Managing Director, Tax Partner at Morris Consulting, Inc., and Chair of the ACG External Relations Committee.
Here are some of the survey highlights specific to private equity:
(1) In the past 12 months, 35% of private equity firms say they have marked down their portfolio company values, 43% have held values steady, and 22% have marked them up.
(2) Portfolio companies are showing signs of improvement. Seventy-four percent are performing above their prior year EBITDA, while 26% are performing below last year’s EBITDA.
(3) Private equity professionals are optimistic that the debt markets will continue to rebound, with 73% saying they will improve over the next six months, 22% saying they will remain the same and only 5% saying they will worsen. Respondents say the maximum leverage level in today’s environment is: 1-2x (14%); 2-2.5x (38%); 2.5-3x (32%); 3-3.5x (12%); and more than 3.5x (4%).
(4) Most private equity professionals (52%) expect leverage levels to increase in the next six months, but at the same time, more than half (55%) expect to invest 40% or more equity in companies in the next six months.
(5) Some 53% of private equity respondents are concerned about the public’s perception of private equity. This is an increase from 47% in December 2009.
The twice-yearly survey, conducted in March and April 2010, was completed by 681 ACG members and Thomson Reuters customers. Respondents were comprised of private equity, venture capital and buyout firm members (13%); investment bankers, intermediaries, brokers (26%); lenders, finance providers (11%); corporate professionals, entrepreneurs (15%); limited partners (2%); ; and service providers, such as lawyers, workout specialists, accountants and consultants (33%). For a free copy of the full survey results click HERE.