M&A Newsletter - June 2021

June 3, 2021

Market Summary

  • Q1 2021 exhibited a dip in M&A activity following a strong quarter at the end of 2020 as the after-effects of the unprecedented global health crisis remained difficult to read; it should be noted that Q1 historically always has lower volume than the preceding Q4, a trend that has persisted since at least 2018.
  • TEV/EBITDA in Q1 2021 averaged 6.8x, nearly in line with 6.9x in the previous quarter, marking the third post-COVID quarter in which aggregate pricing has been slightly below the 7.0x - 7.2x range that had characterized the market since 2017; it is worth noting that this data may be skewed by transaction mix (i.e. platforms are valued higher than add-ons on average and add-ons have accounted for a larger share of the data over the last three quarters).
  • The two industries showing the highest EBITDA multiples through Q1 2021 were technology and retail, at 8.9x and 7.0x, respectively. EBITDA multiples for all manufacturing companies averaged 6.9x, which is above historical averages of 6.2x.
  • On average, larger buyouts continued to receive a premium to EBITDA multiples. The spread in valuation between deals completed in the $50-$250 million TEV range compared to deals in the $10-$50 million TEV range was 2.0x through Q1 2021, which is in line with historical averages.
  • Recent data is showing an unprecedented gap between companies with above-average financials (TTM revenue growth and EBITDA margins above 10% or one above 12% and the other 8%) and those without; buyouts for businesses with above-average financials averaged 7.6x vs. 5.7x for all others, a premium of 33%, above the already elevated 27% premium in Q4 2020.
  • Platform buyouts averaged higher EBITDA multiples than add-ons through Q1 2021, 6.9x compared to 6.6x, respectively, which is in line with historical averages.
  • The lending market continues to rebound as senior debt levels averaged 3.7x in Q1 2021 after averaging just above 3.0x in 2020.

What’s new at Taureau Group

  • March – Ann Hanna is quoted in BizTimes Milwaukee magazine's article, "Time to sell? COVID and taxes loom over an active M&A market"; read the article here
  • March – Completed the sale of a refrigerated transportation & logistics company to an affiliate of a national transportation & logistics company. 
  • March – Brandon Niemiec joined Taureau Group as an Analyst. 
  • April – Completed the acquisition of Communication Network Engineering, Inc. for Moore Holding Company. 
  • April – Taureau Group published its Q1 Packaging Industry Report; download the report here.
  • May – Jacob Meehan joined Taureau Group as an Associate.

 

After a burst of closings in Q4 2020, M&A levels were lighter in Q1 2021, but still following the market's return to normal activity post-COVID. As confidence improves with continued progress of vaccine distribution, dry power at record levels, interest rates at near record lows, organic growth challenges persisting, and presumed capital gains tax changes, we anticipate strong deal activity through the remainder of 2021.

Active Broad Acquisition Searches

  • Strategic add-on opportunities for ESOP client looking for engineering or architectural service firms with revenues between $2 million - $15 million.
  • Private equity client looking to establish new platforms of industrial businesses with revenue up to $75 million and EBITDA up to $8 million.
  • ESOP client looking to establish new platforms in a broad variety of niche manufacturing and business service industries with EBITDA of $2 million or more and total enterprise values greater than $10 million.
  • ESOP client looking to make acquisitions of highly engineered industrial product manufacturing or engineering companies with less than $20 million of revenue.
  • Acquisition or partnership opportunities for buy-side client looking for automobile technology and power access companies with revenues less than $100 million.

Featured Articles

  • Time to sell? COVID and taxes loom over an active M&A market. - Read the article here.
  • Is Now the Right Time to Sell My Business? - Read the article here.

Market Statistics

Total Enterprise Value (TEV)/EBITDA*

TEV '03-15 '16 '17 '18 '19 '20 Total
10-25 5.6 5.8 6.3 5.9 6.2 6.0 5.7
25-50 6.2 6.4 6.6 6.9 6.9 6.9 6.4
50-100 6.8 7.2 8.2 8.8 7.5 8.1 7.3
100-250 7.4 8.8 9.1 8.7 9.4 8.6 8.2
Total 6.2 6.7 7.2 7.2 7.1 7.1 6.5

TEV/EBITDA—By Industry Category*

Industry '03-16 '17 '18 '19 '20 YTD'21 Total
Manufacturing  6.0 6.8 6.9 6.5 6.7 6.9 6.2
Business services 6.2 7.3 7.1 7.1 7.0 6.8 6.6
Health care services 7.0 8.1 7.8 8.4 7.8 6.4 7.3
Retail 6.4 7.3 7.5 9.3 6.9 7.0 6.8
Distribution 6.3 7.6 6.9 7.0 7.6 6.3 6.6
Media & Telecom 7.0 7.7 7.8 7.0 8.3 NA 7.2
Technology 7.1 9.9 9.6 10.0 7.7 8.9 7.9
Other 5.9 6.5 7.0 6.5 6.3 7.6 6.1

Senior Debt/EBITDA—Splits by Period*

TEV Q219 Q319 Q419 Q120
Q220 Q320 Q420 Q121
10-25 3.4 2.4 3.4 2.9 4.0 2.7 3.0 4.2
25-50 2.6 3.3 2.9 3.0 2.2 2.7 2.9 3.6
50-100 2.9 3.1 3.1 3.4 2.2 2.6 2.9 3.1
100-250 5.1 3.3 3.8 4.9 0.6 3.2 4.0 3.5
Total 3.2 2.9 3.2 3.5 2.7 2.7 3.2 3.7
*Source: GF Data®. Information included from GF Data may not be used or re-published without permission from GF Data or Taureau Group.


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