August 24, 2017 – The Bridgepoint Midwest M&A Index, a measure of corporate merger and acquisition activity in the region, decreased by 15.9% in the second quarter of 2017. Year-over-year, the index jumped 29.2% compared to Q2-16. Driven by slow organic growth opportunities, cheap debt and the proliferation of private equity, 2017 continues to be a year of high valuations coupled with a limited quality supply of companies for sale.
There is a general sentiment in the market that valuations have reached a peak and that change is coming. That said, there continues to be an excess of capital and firms chasing few best-in-class companies and investment opportunities.
“In our conversations with CIOs, fund managers and private equity firms, increasingly we hear that they are positioning for market change. We are 8 years into an equity bull market and markets are vulnerable to disruption. That said, over the near-term, it’s a great time to be a seller or to be raising capital, and a tough time to be a buyer or capital provider. How long valuations and capital availability will hold is harder to predict” said Bridgepoint Managing Principal Matt Plooster.
Chase Meyer of Omaha-based private equity firm McCarthy Capital adds, “it’s no secret that it is a seller’s market – the supply of capital, both debt and equity, continues to drive up valuations…eventually, the market will normalize…so every business owner should ask themselves whether they can take advantage of the current market conditions.”
To read the full report with additional commentary and Midwest M&A market data, please visit www.bridgepointmb.com/bridgepoint-insights
About Bridgepoint Merchant Banking
Bridgepoint Merchant Banking is a middle market investment firm headquartered in Nebraska and Iowa that serves business owners and companies over their corporate lifecycles by providing merger and acquisition and corporate finance advisory services.
Bridgepoint Merchant Banking is a division of Bridgepoint Holdings, LLC. In order to offer securities-related Investment Banking Services discussed herein, to include M&A and institutional capital raising, the Principals of Bridgepoint are registered representatives of M&A Securities Group, Inc., an unaffiliated broker-dealer and member FINRA/SIPC.
Anyone that’s been through the process of securing capital, making an acquisition or transferring ownership knows how complex, time consuming and frustrating transactions can be. There are many things that can get in the way of a deal closing, like negotiating issues, due diligence surprises, unrealistic valuation expectations, and cultural differences, among others.
There are a variety of things that improve your chances to obtain a successful outcome, but there’s one thing you really need – that is often overlooked – and that’s discipline. It’s a long, winding and poorly lit road between wanting to do a deal and actually getting it done. Give yourself the benefit of a road map. Understand clearly what your objectives are…before you start…and then stick to them.
If you are raising capital, know the amount you are seeking, but more importantly you need to understand what the capital will do for you (what value will it create) once it’s deployed in the business. Also, raising capital is more than getting a check. Along with the check comes the check writer, too. So, it’s wise to start the capital raise process by understanding what you want in a capital partner and then, as the process moves along, evaluate them based on your criteria. Also, don’t hope that they will be a good partner, perform reverse diligence by asking to speak with companies that have taken their capital. Find out what they are like in the board room, how they handle unexpected situations, and if they would recommend the capital provider to others. If it’s a stand-up firm, they will respect and respond to your request.
If you are making an acquisition, understand why you want to make it before starting. What the strategic objectives are that you hope to achieve. Build a profile of your ideal partner and understand what your constraints are. For instance, if you will need financing to close the deal then you should talk to someone, like an investment banker, that can help you assess that before you start. There is a price you can’t afford. If you know that upfront then you can have the discipline to walk away rather than take ill-advised risk. Don’t chase deals.
Selling a Business
If the objective is to sell your business or a business unit, then understand what is important to you about disposing of that business. Obtaining the highest price is often the first response, but most Midwest business owners really care about their legacy – how their customers and employees will be treated post-transaction and whether jobs will be retained. Think about the cultural characteristics that have contributed to your companies’ success and use those as qualitative criteria when evaluating successors. Compromise, but don’t settle. You will never regret having the discipline to walk away from a bad deal.
The more time you take to identify what’s important to you early on, and having the right help to do so, the more clarity you will have when the process begins (and potentially less discord among family members, shareholders and/or the board). It will help define your prospect list. It will help guide your evaluation as discussions evolve into negotiations and ultimately documentation. None of this is to suggest that you will get everything you want. However, knowing what you want and having the discipline to understand and protect your parameters will increase the chances of your deal getting done and that you will feel good about it in the end.
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