October 25, 2021
Middle Market M&A: Strategic v. PE Valuations
Check out Prairie Capital’s recent “Middle Market Perspective” report. The report has a lot of interesting data, including a comparison of strategic buyer and private equity buyer valuations. This excerpt says that strategics have a lot going for them:
Strategic buyers are a major factor in the M&A market. Synergistic cost savings, access to new customers and other revenue opportunities provide strategic buyers with reasons to pay more than the typical financial buyer. Our data show that the strategic buyer community was paid a significant premium price before, during and after the pandemic. Clients with “high price” as their major company sale objective need to attract the attention of the strategic buyers in their space.
– Strategic buyers are active participants in middle-market M&A. In Q2 2021, strategic buyers, on average, paid a 1.7x multiple more of cash flow than PEs.
– Over the last five years, EBITDA multiples paid by PE buyers have remained in a range centered around 7.0x.
– The valuation data of the last few years suggest that strategic buyers are paying a premium of at least 1.5x when compared to PE firms in the M&A market, typically paying in the mid to high 8s as a multiple of cash flow.
The report covers a number of other aspects of conditions in the middle market, including M&A activity, deal valuations, LBO capitalizations, financing market conditions and loan issuances.
– John Jenkins