COVID and its recent delta variant is still having an impact deal making. Jon Perry, CEO of Specialty Products & Insulation, says, for instance, travel is still somewhat limited. That means dealmaking is a little less face-to-face, with technologies such as Zoom being used for initial meetings to get to know people.
Additionally, he’s seeing supply chain disruptions creating both issues and opportunities for many companies.
“If you look at our space, some of the products that we sell, insulation-related products, some of those were on allocation from the manufacturers because of supply constraints,” Perry says. “You had COVID and then you had the deep freeze in Texas that really affected some of the chemical manufacturers down there. So, it's really put some of the squeeze on some of the products that we get.”
Getting a limited supply from suppliers means that in the marketplace there is less product, so prices escalate. That’s led Perry to be very careful about some of the deals that his company is looking at right now.
“We have to really be diligent in their financials because they're having some great years, record years in 2021 so far, and they're getting enormous margin expansion, gross margin expansion, because of some of those constraints from supply chain and market.”
When that happens, he says, the companies want to get paid based on what could be considered inflated EBITDA when compared to historical performance.
“So we have to be very careful and we have to look at what is the true sustainability of some of these deals, and then price the to deal accordingly,” Perry says. “They don't always want to hear that, but you have to have that conversation.”
FNB Corp. EVP and Regional President Brad Jones says seeing some companies hurt by COVID and others benefit has meant trying to normalize those numbers.
“It's a new variable that in the first 30-something years of my career you never had to deal with but it is very much alive just in general capital raising,” Jones says.
Perry and Jones, along with US Brick Holdings CEO Mikee Johnson, spoke at this past week’s Charlotte Smart Business Dealmakers Conference about dealmaking in today’s market. Hit play on the video above to catch the full panel discussion.