We at Watermark want to contribute to the developing COVID-19 situation by sharing facts and opinion on how this global development is affecting M&A markets. The information table below should be no surprise regarding a slowdown in closed United States M&A transactions year to date through March 15th. Interestingly enough, M&A transaction announcements are up 33% vs the same period in 2019, however transactions closed are down 15.3%. Closed M&A deal value has also declined 31% year-over-year. Energy and Financials deal volume are off the most of any industry. Meanwhile, valuation multiples (Total Enterprise Value/Revenues and Total Enterprise Value/EBITDA) are down between 25 and 44%.
While it is early to opine on how much the M&A deal market will decline in 2020, our advice to owners considering selling is to evaluate the strength of your core business model for the next 12 to 24 months in light of volatile conditions. Your projections will come under greater scrutiny in due diligence in times like these, which can affect your negotiations, purchase price, and ability to close the transaction. M&A will certainly continue in a disruptive market, but how you prepare for a M&A transaction (preparation phase disciplines) must be the top priority.
For acquirers, if your core business is anticipated to be healthy in the upcoming market conditions, and M&A has been an important growth strategy, the pendulum is likely swinging from a seller’s market to an acquirers’ market. Strengthening your due diligence, valuation, synergies and integration planning teams should be a priority to capturing ROI from M&A near term.
United States M&A Activity Year to Date Through March 15, 2020 vs. March 15, 2019
|YTD 2020||YTD 2019||% Change|
|M&A Transactions Announced||9,900||7,438||33.1%|
|M&A Transactions Closed||3,079||3,635||-15.3%|
|Closed M&A Deal Value ($ in Bn)||$199||$288||-31.0%|
|Avg TEV / Revenue Multiple||3.44x||4.65x||-26.0%|
|Average TEV/EBITDA Multiple||12.95x||22.89x||-43.4%|
|# of Transactions Closed by $ Ranges:|
|Greater than $1Bn||40||54||-25.9%|
|$500 – $999.9MM||23||34||-32.4%|
|$100 – $499.9MM||157||201||-21.9%|
|Less than $100MM||649||847||-23.4%|
|# of Transactions Closed by Sector:|
|No Industry Assigned||282||256||10.2%|