Everything is on sale
I'm looking at current trading comps for various software companies, and everything is on sale right now in this downturn. If you're seeing what I'm seeing, EV/EBITDA multiples for some solid assets are 5-15x, still throwing off 25%+ EBITDA margin, where they used to be some 30x+. I bet Q3 is going to be one of the busiest deal activity seasons in recent history. We saw something similar at Bain, when the pandemic hit our PEG diligence dried up for a couple months, and then went full throttle for the next couple years, I expect something like that will happen now.
Would love alternative viewpoints.
I guess that assumes that private M&A comps will mirror the current public comps, will they though? Why would someone sell their private asset at those depressed valuations
lol this. OP is just rationalizng to himself that there is no recession coming
Maybe for private, you could kinda see his thesis with Thoma Bravo buying Anaplan for $10B after their valuations fell.
Yeah this thesis of course makes sense for take-privates
Stripping out all the inflation/rates/macro noise, at least up here in Canada, markets are no longer paying ridiculous premiums for growth without profitiability. There is a divergence between those with EBITDA and those without.
Am starting to see inbounds from the "haves" above inquiring as to potential acquisition opportunities among the "have nots". And why wouldn't they - valuations are rationalizing and these are still growing business with decent scale. We don't have access to the same massive pool of private capital, and there is a really large universe of businesses that fall outside of the US mandates, mostly due to minimum ticket size.
There is some recession wariness but if all goes ok, I'd think 2H is going to be busy in tech.
Don’t forget about the impact of leverage. One of the problems with trying to do a deal in 2009 is that no banks were lending any money. Companies were cheap (in hindsight), but everyone was too afraid to buy and banks were not issuing new loans to back LBOs. Furthermore, business owners wouldn’t accept lower multiples for their companies — they simply wouldn’t sell at the depressed valuations. Deal activity pretty much ground to a halt and PE firms focused their attention on their portfolio.
Lazard is the best bank by far for EB
low current multiples are because of the expectation of negative growth in the upcoming year which will make the multiples higher. there are some companies which were doing great due to pandemic, most of them are tech. this and next year market expects them to do worse, which is a reasonable expectation. so, now juicy looking 15-20 P/E might turn into 40 P/E next year with the stock price falling.
^ Spot on, I hate when people look at LTM P/E and call a stock 'cheap' when management literally just forecasted an earnings decline for the next year
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