General Market Conditions Thread

searcher profile

June 21, 2022

by a searcher from Princeton University in California, USA

I'm sensing that a lot of sellers are dropping out of processes at this point and focusing / preparing for economic headwinds. It's getting more difficult to obtain assurance that sellers are prepared to close if there's any mention of reduced valuation multiples, even though there is clear deterioration in the core businesses.

Just wondering if others are experiencing this as well, and how your strategy might have changed since, say, 6-12 months ago.

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commentor profile
Reply by an intermediary
from The University of Chicago in Chicago, IL, USA
In my exerience over 35 years as M&A Intermediary, in down and uncertain market, a) Multiples do go down, and b) Multiple do NOT go down. Both are true statements. This has to do with % composition of good and marginal businesses in down and uncertain economy. A good business owner will hang on to the business for a while longer rather than take a lower price. whereas, the marginal business owner wants to off-load before it gets worse. This changing mix reduces the average multiple, but NOT that for good businesses. Experienced buyers understand this. They will buy a good business in down market and pay the prevailing price (which will still be lower than that in an up market under auction). They also increase their equity % to make up for tighter lending in a down market.
I am currrrnetly working on an under-performaimg asset. We just accepted a significantly lower offer. On the other hand, a Seller I was trying to get a listing for the last 3 years, just sold last week for 7.5x.
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Reply by a searcher
from University of Notre Dame in Austin, TX, USA
My experience, MM PE Firms say they have far less appetite for add. cap calls and confident multiples with a turbulent market. Sit and wait. (I was on such a call with a seller).

That said, it seems an opportunity for searchers and sellers to find each other if sellers are ready to be out and are okay not selling at the top. They may sense that searchers could be a better fit than MM PE.

Curious for others' thoughts.
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