Though Stephen Guy, KPMG Corporate Finance LLC Managing Director & Group Head, has been working in M&A for over 30 years, this is undoubtedly the best sellers’ market he’s ever seen.
It’s benefiting from a few fairly unique dynamics. Most notable among them are the continued low interest rate environment making capital cheaply available to finance transactions and a macro economy that remains fairly strong despite the pandemic.
But, there has been at least one trade off worth mentioning: Those responsible for conducting due diligence for private equity or corporations have been completely sold out from a resource perspective.
“Many firms that provide financial due diligence and commercial and business and other due diligence services for companies in a transaction, they work on an hourly fee perspective,” Guy says. “When we are checking in with our diligence colleagues at KPMG, or frankly at any other firm who we often bring in utilizing our transactions, we're hearing a very similar response in that they are completely full as far as the time allocation — they don't have really any bandwidth to take on new deals.”
That, he says, reflects the tremendous dealflow. But it means having to look at and entertain other options sometimes for retaining advisers to assist on transactions.
Andrew Sachs, Sachs Capital LLC Managing Member, says he’s also seeing extraordinary activity. But he’s also seeing an industry that has fundamentally changed.
“The whole notion of private equity was the market is inefficient and you could find arbitrage opportunities,” Sachs says. “The market is no longer inefficient. It's incredibly efficient.”
Add that to a lot of available capital and zero percent interest rates, not only enabled valuations to go up but it forced many to look for yield in other places.
Because deals are run in an efficient process, it lends itself, coupled with the unique conditions in the market, to extraordinary high multiples, he says.
Charles Morton, a partner at Venable LLP, adds that there are also demographic factors at work that also are fueling lots of activity. More founders are wondering whether this is the right time in their life to consider selling the business.
“All those things are lining up to clearly create the perfect storm of activity,” Morton says. “If you're in the audience and you're listening to the discussion and you're considering whether or not to sell your business, you have to be thinking that this could be a really terrific time.”
Guy, Sachs and Morton, along with Robert W. Deutsch Foundation Director Mac MacLure, spoke at the recent Baltimore Smart Business Dealmakers Conference about the state of M&A, factors influencing the buy-and-sell-sides, and what you need to do to ensure a closed deal in this new normal. Hit play on the video above to catch the full conversation.