Sell side (l'm being sold) and final two firms we’re interviewing both shared today the stats around all the capital sitting undeployed how few "good deals" are out right now, so our double digit EBITDA profitable business is going to get a sexy double digit multiple when we take it to market.
Would love some perspective - I'm reading that overall market instability, not lack of companies performing, is what's slowing down deal flow and PE / strategics aren't worth risking capital on anything other than a slam dunk or as close to a sure thing as they can get.
Performance is mixed to bad. Anyone who says they don’t have a few troubled port cos is lying.
What's the market? The market is composed of the companies, so market performance is tied to the performance of the companies
imho, it can be a real nice time to sell something high quality when the broader environment is shitty, because if it passes the initial risk-aversion filter and it's truly good, it shines like a lighthouse. Fewer deals happen but that capital still has to flow somewhere
Generally seeing a barbell effect of either shitty deals or really attractive ones in the market. So any deals that come out that are actually really nice companies are getting a premium because there are so few good deals (or medium-attractive deals) coming out. Leading to strong companies getting tons of bids.
So if your companies as good as you say, they're probably right.
This (and other comments) all track.
We actually are poised to crush if a recession happens, which I think is leading to the IB’s excitement. In our primary vertical, and even with COVID, we never had a red year.
I only do LMM consumer, and in my experience, it was significantly easier to get a disgusting multiple when markets were hot in 2021.
Now I'm seeing friend's brands - even some with insane growth + profitability - being valued quite a bit lower than what they could have received.
Granted, due to the trade wars & associated instability, a lot of people in in the "wait and see" camp. A lot of consumer is imported from overseas and there isn't a savings gap big enough to justify bringing manufacturing back to the US, so brands are simply swallowing compressed margins...
A giant portion of that is interest rates as well, things don't pencil as well when all in debt rates are 12% versus 7%.
I think LMM is less sensitive to interest rates, or at least consumer, is because you're relying on growth to drive returns + multiples improving as the business grows. Keep in mind the multiple expansion you see going from ~$3m in EBITDA to $8m or $10m in EBITDA is A LOT more than $10m -> $20m or something.
Multiples don't mean anything if EBITDA is predicted to decline. All industries are going to be hurt by the nonsense going on right now.
With the massive caveat that the devil is in the details, I think I understand the question. This could be an 8-hour conversation, but think of it this way. There are Crown Jewels that can transact at anytime and then there is everyone else that are absolutely dependent on market dynamics. Very few companies fit into this first bucket. Take a real look at the business, and if you don’t think it is in the first bucket, the banker is spitting out a bunch of garbage to win the mandate. You should be able to figure that out if you know the industry.
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