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As Good As It Gets?
You've been bombarded with news about the economy, the credit crunch and the probability of a capital gains tax hike. However, even with these uncertainties, middle market M&A activity remains very robust with strong valuations, primarily due to the following:
Abundance of Investment Capital – U.S. Private Equity Groups (PEGs) raised a record $309 billion in 2007 and have over $1 trillion in cumulative equity capital to invest
Strategic Corporate Buyers – Continue to achieve strong profits and look to grow through acquisition of strong, well managed companies
Middle Market Focus From Larger PEGs – Due to the credit crunch, larger PEGs have come down market and are competing for transactions
Weak U.S. Dollar – creates attractive pricing for international buyers looking to invest in U.S. companies
Valuation Multiples Remain Strong Across Industries
| Sector |
Total Enterprise Value / EBITDA |
Total Enterprise Value / Revenue |
| Utilities |
10.5x |
1.9x |
| Consumer Staples |
10.0x |
0.6x |
| Information Technology |
8.8x |
1.1x |
| Industrials |
8.6x |
0.9x |
| Telecommunications Services |
8.0x |
2.0x |
| Consumer Discretionary |
8.0x |
0.8x |
| Energy |
7.5x |
2.4x |
| Healthcare |
6.4x |
2.2x |
| Materials |
5.0x |
1.3x |
Averages 2/15/2008 - 5/15/2008, source CapitalIQ
But for How Long?
There are a number of external factors to consider when determining when to take your Company to market. The impact on the overall M&A market can be significant and have a dramatic effect on the future valuation of your company.
Credit Market Uncertainty – So far, lenders are still willing to finance mid-market M&A transactions for strong companies. With further market deterioration, it may limit the amount of leverage lenders are willing to provide, thus negatively impacting valuations.
Recessionary Threat – The U.S. economic expansion is over. With recession looming, the Fed may be forced to raise interest rates to temper inflation, thereby increasing the cost of debt for M&A deals.
The Declining U.S. Dollar – With no short term recovery expected, U.S. companies sourcing internationally face rising costs and margin compression.
Federal Capital Gains Tax Uncertainty – Depending on the outcome of the November presidential elections, there is a strong likelihood that today's historically low rate of 15% may return to its previous 28% or higher. This increase will significantly reduce the after tax proceeds from an M&A transaction.
Decisions You Make Now Have Exponential Consequences
Whether you're considering a transaction today or simply exploring your options, Ascend will help you evaluate the possibilities and choose the best path to achieve your vision. Taking action early provides many options – if you don't, you'll need to be prepared to answer:
- What will be the value of your business next year with today's risk factors?
- Will the tax man be the beneficiary of your hard-earned growth (or more)?
- What if you don't take advantage of the market and your competition does?
- Are you willing to miss this cycle?
What have you got to lose? Perhaps a lot.
 To find out, visit the Ascend Accelerator to learn what your company may be worth today and see how the right changes can significantly affect your company's future value.
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