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M&A Insights – Mark Young, Managing Partner, CKS Advisors

Welcome to the December 2020 edition of M&A Insights. Our goal at CKS Advisors is to help you stay up to date on the Mergers and Acquisitions climate.

As we head into year-end, we would like to provide an update on the state of the M&A Lower Middle Market.

Volume and Valuations (please refer to the chart below):

  • Overall, it appears buyers and sellers are becoming confident in the future and/or becoming more comfortable with executing deals during a pandemic as market activity has rebounded significantly from the hit it took in the 2nd quarter.
  • Evidencing this is GF Data’s 3rd quarter report indicating deal volume for the quarter was 80% of normal, compared to 44% recorded in the 2nd quarter.
  • Impacts to valuations are more of a mixed bag. The low end of the middle market (Values $10-50M) experienced increases to flat impacts, versus larger middle market deals (Values $50-250M), which experienced some contraction. Because of the varied impacts, it is difficult to draw any clear overall long-term conclusions other than to say it would appear deal values were less impacted than transaction volume.

Deal Structures:

  • Use of contingent considerations such as earnouts, rollover equity, and seller’s notes continue to be more prevalent than before COVID in order to bridge buyer-seller valuation gaps.
  • GF Data reports that debt levels used to finance transactions, while significantly decreased in the 2nd quarter to 38%, rebounded in the 3rd quarter to pre-COVID levels of 49% but with more reliance on non-bank debt.

In Summary:

  • Uncertainty in the M&A market, as measured by transaction volume, is starting to wane as we move towards a new normal.
  • Good news for sellers, “our Clients”. The data suggests deals in the $10M-$50M value range have maintained their pre-COVID values.
  • Thus, with buyers having record amounts of capital at their disposal and continued historically low interest rates, attractive companies should continue to fare well in the M&A market.

Be well and have a good holiday season,

Mark

 

If you would like to learn more about this subject, the M&A market in general, or are ready to take the next step to explore your options, we would be glad to meet. Please contact me at 480-351-8533 or myoung@cksadvisors.com.

About CKS:

CKS Advisors is a market leading Investment Banking and Value Creation Advisory Firm that has specialized in providing services to lower middle market companies and entrepreneurs for nearly 20 years. The Firm’s Client base has included founders/owners, family owned businesses, investor groups, individual entrepreneurs, and management buyout groups.

Our Investment Banking practice provides our Clients highly professionalized services for selling a business, buying a business, and raising capital for growth and liquidity purposes. Our Value Creation Advisory practice assists business owners by creating strategies and tactics designed to maximize Enterprise Value and become a “Got to Have Company” ™. Business owners select CKS because of our dedication to our Client’s success.

This post is for informational purposes only and does not constitute an offer, invitation, solicitation, or recommendation to buy, sell, subscribe for, or issue any securities. While the information provided herein is believed to be accurate and reliable, CKS Advisors, LLC and Ashland Securities, LLC make no representations or warranties, expressed or implied, as to the accuracy or completeness of such information. All information contained herein is preliminary, limited and subject to completion, correction or amendment. It should not be construed as investment, legal, or tax advice and may not be reproduced or distributed to any person. Certain Principals of CKS Advisors, LLC are registered representatives of Ashland Securities, LLC Member FINRA, SIPC. CKS Advisors, LLC and Ashland Securities, LLC are separate and unaffiliated entities.  Securities and Investment Banking Services are offered through Ashland Securities, LLC.