Globally, both the volume and value of M&A transactions slowed in the first quarter of 2016.  Private Equity transactions were not exempt from this slowdown, which is being caused by tightening credit to finance transactions, election uncertainty, and lower confidence in the economy.

With regard to the volume of Private Equity transactions, the following chart depicts the Q1 2016 slowdown.  More specifically, Q1 2016 was almost 17 percent lower than Q1 2015.

With regard to the value of Private Equity transactions in the first quarter, the slump in the number of completed transactions was even more apparent.  The value of transactions in Q1 2016 versus Q1 2015 decreased by 34 percent.  The major factor contributing to this was the simple fact that there was a dramatic slowing of very large transactions.

Private Equity buyers still have plenty of “dry powder” and continue to look for transactions across all sectors.  Their investors are always looking for good returns, which can only happen if the Private Equity firm is invested.  In addition, while Private Equity buyers frequently don’t outbid strategic buyers, they do offer competitive valuations.  Furthermore, they provide business owners that are selling a very viable alternative with lots of other benefits.

The key to closing a successful transaction, particularly if the goal is to do that in 2016 is to explore the topic and develop definitive objectives.  Many sellers wait too long or have this fuzzy notion that a qualified buyer will seek them out.  Neither scenario achieves the best value.  

Founded in 1987, Versailles Group is a boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies in the middle and lower-middle market. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services and has been completing cross-border transactions since its founding in 1987.

Global M&A activity in the first quarter of 2016 was lower than both Q1 2015 and Q1 2014.  Typically, the first quarter is slower than the fourth quarter and this year was no exception.  In terms of volume, Q1 2016 was about 21 percent lower than Q4 2015.  By comparison, Q1 2015 was only 7 percent lower than Q4 2014.

As depicted in the graph below, in terms of volume, Q1 2016 was about 18 percent slower than both Q1 2015 and Q1 2014.

In terms of value, Q1 2016 was dramatically lower than Q1 2015 and about 8 percent lower than Q1 2014. 

M&A in the US and cross-border transaction activity remain strong; however, not exempt from this slowing.  Sellers should move quickly to complete transactions while buyers should start to prepare to make acquisitions as valuations will surely drop if this trend continues.

Middle-market M&A activity, as measured by volume, was the lowest that it has been in 10 years.  By value, M&A activity in January was the lowest since 2009. 

There are many theories about why this is happening, for example, a volatile stock market, declining energy prices, rising interest rates, the slowing of China’s economy, and uncertainty caused by the US election process.  We would not deem this to be a trend unless we see this continue for a few months.

For sellers, multiples seem to be dodging this lower level of activity.  And, in the lower middle market, that is, companies with less than US$100 million in revenues, there seems to be plenty of interest, activity, and definitely no degradation of multiples.

As we’ve all noted, the Fed may not be able to raise interest rates, energy prices can’t fall much more, and an election won’t stop people from completing synergistic or opportunistic transactions.  Thus, there are plenty of good opportunities on both the sell and buy side.

If you’re interested in completing a transaction in 2016, either buy-side or sell-side, now is a good time to explore and develop objectives.

Founded in 1987, Versailles Group is a Boston-based investment banking firm specializing in mergers, acquisitions, divestitures, and cross-border middle-market transactions.  Versailles Group has closed transactions in all economic environments, literally around the world.  Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987.

If you are interested in discussing your M&A objectives, please do not hesitate to contact us. 

Donald Grava
Founder and President
+1 617-449-3325 (Direct)

If you’re an entrepreneur interested in selling your business, it is now more important than ever to consider overseas buyers. Due to the progressive globalization of the world economy, virtually any company interested in M&A stands to gain from participating in the international market, regardless of that company’s size.

For overseas buyers, acquiring an American business is often an attractive option because it allows them easy and strategic access into the lucrative American market. International buyers might also want to acquire an American company because they consider the United States to be a relatively safe haven from more volatile foreign markets. Buyers may even be motivated by the desire to gain an investment visa through such a transaction.

The high demand among overseas buyers plays directly in favor of the sellers. When it comes to selling your business, the more options you have, the better. For instance, you could sell your company to an overseas party if no domestic parties make a reasonable offer. In another scenario, the presence of a possible overseas buyer(s) for your company could even spur other prospective buyers to make more aggressive bids and push an auction to even greater heights for valuations.

This is the primary reason why all American entrepreneurs should keep overseas buyers in mind. The international market will open new doors for both you and your company. For instance, say that you’re trying to sell your company to domestic buyers, and your best offer is US $20 million. If you’ve only bothered to search domestically, you’ll have no choice but to accept that offer. However, imagine that you had searched for buyers in the international market as well. Perhaps you would’ve found a buyer in Brazil also willing to pay US $20 million, forcing your American buyer to increase its bid to $22 million. Or maybe you would’ve found a buyer in South Africa willing to pay US $30 million! It has certainly happened before, and it can certainly happen again.

Founded in 1987, Versailles Group is a boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies in the middle and lower-middle market. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services and has been completing cross-border transactions since its founding in 1987.

For more information, please contact

Donald Grava
Founder and President
617-449-3325

Across all sectors, M&A activity, for the twelve months ending May 31, 2015, has increased relative to the same time period last year. Both strategic and financial buyers are completing more acquisitions because of the recovering US economy, the impending interest rate hike, and other factors. The data above illustrates the increase in M&A deal volume in the middle market.

The technology sector has accounted for most of the increase in deal volume. In the last three months (March-May 2015), there were 526 deals completed in technology services-- more than any other sector. That number is up from 477 technology services deals completed from March to May of 2014.

The need to innovate, grow, and keep pace with the changing technological landscape is fueling M&A volume in the technology sector. Technology companies are increasing their IT capabilities via M&A strategies to scale their operations, develop domain expertise, or pursue growth prospects.

The rationale for acquisitions in the technology sector is strong: internet data traffic is expected to triple from 2014 to 2019. In addition, 50% of this internet traffic is expected to come from devices other than traditional desktops. Technology companies are acquiring businesses that enable them to ensure growth through the development of new technologies or to penetrate new markets.

Whether it's a tech company or not, if you are interested in completing an M&A transaction, there is no better time than now. The looming interest rate increases, possible change of political party, world events, etc., are driving people to complete deals before it's too late.

Founded in 1987, Versailles Group is an independent, middle-market boutique M&A firm and offers its clients access to buyers and sellers worldwide. The firm provides its clients with a high level of personal attention coupled with cross-border transaction experience. Clients benefit from world-class advice, broad expertise, and flawless execution.

As one of the leading middle market investment banking firms in Boston, the firm’s focus is on obtaining superior results for its clients. That’s the primary reason why Versailles Group has done more repeat business than any other middle market firm. The net result for our clients is a superior transaction, whether it is on the buy or sell side.

If you are interested in buying or selling a business, please contact us for a free consultation.

Donald Grava
Founder and President
Versailles Group, Ltd.
617-449-3325

The best time to sell a business is usually before the owner has to.

This principle is especially important in the lower middle market and middle market, where a company’s value often depends not only on earnings, but also on preparation, management depth, customer relationships, and the owner’s role in the business. Market conditions matter. Buyer demand matters. But the best time to sell is usually when a company is performing well, buyers can see a credible path for future growth, and the owner still has the flexibility to choose among several alternatives.

For many business owners, selling a company is a personal, strategic, and often emotional decision. A sale may be driven by retirement planning, succession issues, family considerations, a desire to reduce personal risk, or the recognition that the company may need additional capital, management depth, or strategic resources to reach its next stage of growth.

Still, timing can have a meaningful impact on value.

When M&A conditions in the middle market are favorable, buyers are more active, financing is more available, and valuations may be stronger. As a result of robust demand, valuations can be driven higher in many sectors. However, even in strong markets, sellers often hesitate when it comes to the sale of their companies.

Some owners are unwilling to sell because they believe demand and valuations may reach even greater heights in the future. Others are simply not ready to begin a process. Some have not prepared their financial information, strengthened their management team, or considered how the business would perform without their daily involvement.

Yet timing the market is always difficult.

A decrease in demand from buyers, a change in financing conditions, weaker company performance, or an increase in the number of sellers can reduce valuations as demand falls and supply increases. For sellers trying to receive the most consideration for their companies, the key is to be ahead of this shift, not reacting after conditions have changed.

The decision to sell should begin with a practical assessment of the business.

A company may be well positioned for a sale when revenue and earnings are stable or growing, margins are defensible, customer relationships are strong, and buyers can understand the company’s future opportunity. Clean financial statements, a capable management team, limited customer concentration, and a clear growth story can all improve buyer confidence.

By contrast, it may be better to wait if the company is facing short-term operational issues, declining performance, unresolved legal or accounting matters, or heavy dependence on the owner. Uncertainty often reduces value, slows diligence, or creates more difficult deal terms.

Preparation can also influence timing.

Owners who are not ready to sell immediately can still benefit from preparing early. Reviewing financial reporting, addressing customer concentration, strengthening management, documenting recurring revenue, and clarifying growth opportunities can make a future process more efficient and competitive. In many cases, the work done before a company goes to market can have a meaningful effect on the outcome.

The owner’s readiness is equally important.

Business owners should consider whether they are prepared for the demands of a sale process, the disclosure required during due diligence, and the potential transition after closing. In many lower middle-market and middle-market transactions, buyers want the owner to remain involved for a period of time to help preserve relationships, customer confidence, and operational continuity. That transition should be considered before a process begins.

The right time to sell, therefore, is not simply when the market appears strong. It is when company performance, market conditions, and the owner’s objectives are aligned.

For some owners, that may mean beginning a sale process. For others, it may mean preparing the business over the next several years so the company is stronger when the time comes. In either case, waiting too long can reduce optionality. Selling from a position of strength generally gives owners more choices than selling under pressure.

If you are considering buying or selling a lower middle-market or middle-market business, or if you would like to understand whether your company is ready for a sale, please contact Versailles Group for a confidential consultation.

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With regard to consumer products multiples, it’s interesting to observe the differences in valuations between the various segments. Whether the metric is enterprise value divided by last twelve months’ revenue (“LTM”) or enterprise value divided by last twelve months EBITDA, Food and Beverage commands the highest multiples. (We explain why below.)

Gift & Home Décor seems to garner the lowest valuations in this sector. But “low” doesn’t mean bad in this case. A multiple of 9.6 times EBITDA is very respectable for this niche.

In the consumer space, strategic acquisitions are a relatively quick way for buyers to keep pace with emerging consumer trends. For example, there are a number of soft drink companies that have acquired water companies, sports and energy drink companies, etc. The purpose of these acquisitions was to respond very quickly to customer demand. This heightened demand and competition for companies in this niche translate into higher multiples and values as depicted in the charts above.

Founded in 1987, Versailles Group is a boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies in the middle and lower-middle market. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services and has been completing cross-border transactions since its founding in 1987.

M&A Deals - The Benefits of a Global Auction

With regard to M&A Deals – the benefits of a global auction should always be considered when selling your business. It is important to offer a sell-side transaction as broadly as possible to achieve the best possible results.

A broad-based approach will result in a global auction for the company, thus ensuring the highest possible value as bids are received from across the globe. A multitude of bids to examine will reveal the true value of the selling company. It will also provide the seller with unique insights as some of the bids will have different structures. This will give the seller a chance to “mix and match” structures to obtain not only the highest value, but also the best terms.

Versailles Group has conducted a number of these global auctions. It should be stressed that all of these auctions are 100 percent confidential. It should also be noted that the results have been phenomenal, in terms of both value and terms. Versailles Group sold a company in Massachusetts to a company in South Africa. Another company headquartered in Houston was sold to a company in New Zealand. The firm has multiple success stories, all based on the international, highly confidential auction. In the case of the South African company, they paid two times the next closest bid, which demonstrates that this process works.

Entrepreneurs and corporate sellers should always be cognizant of the eventual sale of their business and should be preparing for a sale long before they think it’s time. Private equity investors and venture capital investors achieve success when selling businesses because they start preparing for a sale even before they invest.

Most business owners don’t think about selling their business, particularly when they’re starting out; however, it is something that should be considered annually. This should be done with a professional M&A advisor who can advise you about your company’s possible value, the market, possible timing, etc.

When it is time to sell, a broad-based approach to the sale should be your first consideration. Frequently, the best buyer is a company on the other side of the world. That being said, as with all M&A deals, confidentiality is paramount. Only responsible M&A advisors know how to conduct themselves and the sale of your company securely and confidentially.

Conclusion

An M&A advisor with decades of experience and a global reach will know how to create and facilitate a worldwide, confidential auction. That is the best way to achieve the maximum value and terms when selling a company. To summarize, for M&A deals, the benefits of a global auction should not be underestimated.

M&A Deals in 2014

M&A deal volume in 2014 was quite robust – almost US$4 trillion of transactions were completed worldwide, which was an increase of over 50 percent from 2013.
43,613 transactions were completed across the globe in 2014. The Americas and Europe experienced approximately the same M&A volume, with Asia Pacific trailing by a few points.

2014 M&A Deals By Region

 
By sector, excluding financials, high tech was the most active, followed by industrials, consumer products and services, and materials. Although telecom had the lowest number of transactions completed in 2014, deals in this sector were very large, resulting in over US$260 billion of deal value.

2014 M&A Deals by Sector

About Versailles Group, Ltd.

Founded in 1987, Versailles Group is a boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies in the middle and lower-middle market. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services and has been completing cross-border transactions since its founding in 1987.

As one can see from the chart below, global M&A, as we’ve reported before, is flying high!

M&A activity for the 11 months ended November 2014 is at a record high since 2011 as buyers and sellers are coming together at a very rapid pace. Our belief is that many companies and entrepreneurs want to get deals done before interest rates increase, there is a change in US President, or there is another economic or political crisis. Many people remember the depths of the Great Recession and are taking the necessary steps to ensure their companies and personal net worth are better protected from any future economic downturns.

Buyers are strengthening their companies and sellers are paying off debt, diversifying, and in some cases retiring. What are you doing to increase or protect your shareholder value?