Dealmakers are keeping a watchful eye on China’s response to the coronavirus outbreak, says Signet LLC’s Anthony Manna.
“When SARS came around (in February 2003), China had about 4 percent of the global supply chain,” says Manna, founder, principal and chairman at the global private investment firm. “Now they have 16 percent, and you see this massive stimulus package being put in place to combat the coronavirus problem. China has already announced that they’re going to have more stimulus packages.”
According to MarketWatch, more than a third of all earnings calls held between Jan. 1 and Feb. 13 included the term “coronavirus.”
“It is possible that there will be an increase in the number of companies issuing negative guidance later in the first quarter as these companies gain clarity on the impact,” FactSet senior earnings analyst John Butters said in the story.
As the Chinese government continues to grapple with the impact of the coronavirus within its borders, the disease’s impact on the U.S. economy has been negligible.
“Deals are happening left and right,” Manna says. “We’re doing them, and I know plenty of other people are, too. In the short run, the coronavirus is definitely affecting dealmaking and how global trade is done. But so far in the U.S., I haven’t seen it.”
Dealmakers caught up with Manna to talk about current trends that could impact dealmaking activity.
Easy money
One of the factors that continues to drive deal volume stateside is the affordability of capital, Manna says.
“The 10-year Treasury note has dropped from roughly 1.9 percent to 1.5 percent,” Manna says. “It’s just incredible how cheap this money is. But it’s a seller’s market, so you’re paying a lot.”
He says buyers used to pay between four and six times EBITDA for many standard manufacturing companies.
“Now it’s maybe seven to nine times EBITDA, depending on the location,” he says. “You have to have the right business plan, but once you have it, getting capital is the least of your problems.”
The challenge for dealmakers is to continue to make smart, informed decisions that lead to deals that look just as good in the future as they do today.
“When you buy a company, are you going to overpay?” Manna says. “You see a lot of companies looking at this expansionary period and thinking, ‘Even if we have to overpay, that’s going to be OK because when it begins to contract, we’ll be able to survive.’ For a lot of these large companies, and even the middle market, they see an opportunity to consolidate. Then when the inevitable recession or contraction occurs, they’ll be the survivors and the little guy will be out.”
Inform your decisions
Manna has spent more than 20 years outthinking the competition and creating collaborative partnerships to advance initiatives and ventures in real estate, property management, diversified manufacturing, distribution, health and wellness, technology, investment banking and finance. Under his leadership, Signet has structured, engineered and managed more than $7.5 billion in financial project funding.
His philosophy on evaluating opportunities has remained relatively unchanged.
“I don’t know if we really have goals as much as we always have the same kind of businesses that we look for,” Manna says. “We focus on good opportunities or good businesses to acquire, whether it’s new opportunities or strategic acquisitions. Once you get them, do you have the talent inside them to make sure they continue to grow, or, if it’s a strategic buy, can they culturally fit in with your current operations? We pretty much follow the same game plan.”
Regardless of the type of deal, Manna says the best way to ensure the long-term success of a transaction is to get people involved in the deal.
“We always believe in giving all of our management team ownership opportunities,” Manna says. “I’m a believer that your key management people need to be involved not just in running the company, but also as an investor or owner. When we’re doing deals, we don’t really have a problem with this because there are a lot of people out there who are very interested in these opportunities.”
