M&A Newsletter - March 2021

March 15, 2021

Market Summary

  • Q4 2020 exhibited a flurry of M&A activity following two COVID-depressed quarters in the middle of the year; the number of deals completed in Q4 increased 121% from a recovering Q3; the number of completed deals in 2020 finished in line with a strong 2019.
  • TEV/EBITDA in Q4 2020 rebounded to 7.0x, up from 6.7x the previous quarter, returning the collective average to 7.0x, which is in line with the years leading up to the 2020 pandemic; in total, the "COVID effect" to the M&A market can be fairly represented by averaging Q2 and Q3 at 7.1x, a slight drop from 7.4x in Q1.  
  • The two industries showing the highest EBITDA multiples through Q4 2020 were media & telecom and health care services, at 8.3x and 7.9x, respectively. EBITDA multiples for all manufacturing companies averaged 6.7x, 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 range was 2.1x through Q4 2020, which is in line with historical averages.
  • Buyers have continued to reward businesses with premiums for above-average financials (TTM revenue growth and EBITDA margins above 10% or one above 12% and the other 8%). Buyouts for businesses with above-average financials averaged 7.8x vs. 6.1x for all others, a premium of 27%, slightly above the 20% premium in 2019.
  • Platform buyouts averaged higher EBITDA multiples than add-ons through Q4 2020, 7.2x compared to 6.8x, respectively, which is slightly higher than historical averages.
  • Senior debt levels began to edge back to pre-COVID levels with Q4 2020 showing 3.2x from 2.7x in Q3 2020.
  • With commercial banks beginning to gain confidence in the M&A environment, the subordinated debt portion of the capital structure dropped to 8.5% in Q4 2020 versus 14.4% in Q3 2020.

What’s new at Taureau Group

  • December – Completed the sale of an industrial contracting company to Kinsale Capital Partners, LLC. 
  • December – Completed the sale of Sanborn Tube Sales of Wisconsin, Inc. to Russel Metals, Inc. (TSX:RUS). 
  • January – Andrew Sannes and Tyler Carlson presented, "Unmask M&A in 2021", at the BizTimes Economic Trends event. 
  • January – Completed the sale of Geographic Information Services, Inc. (GISinc), to Continental Mapping Consultants, LLC, a portfolio company of Bluestone Investment Partners. 
  • February – Ann Hanna, Tyler Carlson and Mike Schroeder discussed current M&A market dynamics at TEC (now Vistage).
  • February – Taureau Group was a proud Platinum Sponsor of WMEP's Manufacturing Matters conference.
  • February – Commenced marketing of technology services company for potential sale.
  • March - Taureau Group published its Q1 Industrial & Contract Manufacturing Industry Report; click here to download the report.
  • March - Brandon Niemiec joined Taureau Group as an Analyst.
  • March - Completed the sale of a transportation & logistics company (further details to be announced).

 

After two COVID-impacted quarters with depressed M&A activity, Q4 2020 demonstrated a burst of closings, ultimately bringing the number of closed transactions in line with a strong 2019. The data showcased an uptick in completed transactions in Q4, rebounded valuations and a pickup in total debt levels. As levels of uncertainty continue to diminish, we anticipate pent-up seller and buyer interest through 2021 and overall deal activity to remain high as deal capital remains readily available and confidence levels are improving.

Active Broad Acquisition Searches

  • Strategic add-on opportunities for buy-side client looking for engineering or architectural service firms with revenues between $2 million - $15 million.
  • Strategic add-on opportunities for buy-side client looking for precision machining operations or capabilities in the Upper Midwest with revenue up to $75 million and EBITDA up to $10 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.

Featured Articles

  • Is Now the Right Time to Sell My Business? - Visit here.
  • Mergers and Acquisitions in the COVID-19 Era (WMEP guest blog) - Visit 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 '03-15 '16 '17 '18 '19 YTD'20 Total
Manufacturing  6.0 6.1 6.8 6.9 6.6 6.7 6.2
Business services 6.1 7.3 7.3 7.1 7.1 7.1 6.6
Health care services 6.9 7.6 8.1 7.8 8.4 7.9 7.3
Retail 6.3 7.0 7.3 7.5 9.3 6.9 6.8
Distribution 6.2 7.2 7.6 7.0 7.1 7.7 6.6
Media & Telecom 7.1 6.5 7.7 7.8 7.0 8.3 7.2
Technology 7.1 7.4 9.9 9.6 10.0 7.6 7.9
Other 5.8 6.9 6.5 7.0 6.6 6.6 6.1
Senior Debt/EBITDA—Splits by Period*
TEV Q119 Q219 Q319 Q419
Q120 Q220 Q320 Q420
10-25 4.1 3.4 2.4 3.5 2.9 4.0 2.7 3.0
25-50 3.2 2.6 3.3 2.9 2.9 2.3 2.6 3.0
50-100 3.5 2.9 3.1 3.1 3.4 2.2 2.6 3.0
100-250 3.6 5.1 3.3 3.8 4.9 2.6 3.2 4.0
Total 33.5.5 3.2 2.9 3.2 3.4 2.8 2.7 3.2
*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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