Market turbulence should present opportunities to negotiate reasonable valuations in sectors otherwise valued frothily. Businesses might be newly receptive to takeover interest in choppy markets and access to fresh capital.

Despite a near term pause in IPOs and murmurs of market declines, expect “business as usual” and expect continued M&A competition. In fact and in 2021, 85% of take-private deals began with an unsolicited offer according to William Blair. This figure should remain stead, if not increase in the coming months.

Contact us if and when we can be of help. In the meantime, please find a selection of resources below to support your efforts.

M&A, PRIVATE EQUITY & INDUSTRY UPDATES

AEROSPACE, DEFENSE, GOVERNMENT, CIVIC & SOCIAL SECTOR

Opportunities remain in Industry 4.0 transformation, commercial and military aircraft maintenance, repair, and overhaul (MRO) services and regulatory compliance with increasing complexity in accounting standards and financial reporting requirements. Current revenue multiples average 2.3x and range between 0.4x - 14.5x. EBITDA multiples average 8.7x and range of 2.1x - 42.8x.

AGRICULTURE & FOOD

Opportunities exist in sustainability, channel diversification, manufacturing and processing. Increased M&A competition has been seen in ingredients & flavoring. Current revenue multiples average 1.0x and range between 0.2x - 4.2x. EBITDA multiples average 10.1x and range of 1.3x - 79.4x.

AUTOMOTIVE & ASSEMBLY

Supply chain disruptions, raw material prices, and labor market shortages are expected to remain a challenge. Increased vehicle traffic and vehicle age are expected to drive demand for replacement parts, maintenance and repair. Current revenue multiples average 1.0x and range between 0.1x - 0.9x. EBITDA multiples average 4.7x and range of 1.8x - 11.5x.

B2B, CONSULTING & PROFESSIONAL SERVICES

Expect competition and opportunities in higher-margin staffing, such as IT, life sciences and healthcare. Current revenue multiples average 2.1x and range between 0.3x - 88.0x. EBITDA multiples average 6.5x and range of 1.5x - 19.1x.

EDUCATION, TRAINING & SKILL DEVELOPMENT

Increases in digital transformations and work from home has driven demand for up-skilling of technical competencies for employees. The tight labor market and needs of employees are causing employers to offer benefits beyond the financial - that include additional training and career development. Current revenue multiples average 0.9x and range between 0.3x - 3.4x. EBITDA multiples average 5.7x and range of 2.8x - 18.1x.

ENERGY, ENVIRONMENT & RELATED

Incumbents are expected to acquire ESG assets to expand green energy hubs, deliver energy transition products and to improve CAPEX discipline. See The ESG Imperative in M&A from Bain. Current revenue multiples average 4.2x and range between 0.04x - 34.4x. EBITDA multiples average 12.5x and range of 2.8x - 82.0x.

FINANCE & INSURANCE

As M&A in finance increases, traditional banks are facing increasing competition from PE, digital-native banks, and technology firms buying banks. Increased competition and changing customer needs is driving increased focus on customer retention and new offerings, specifically in banking. Insurance M&A has shifted from creating efficiency to creating capabilities and expanding distribution. Auto insurers are accelerating driver and behavior-based telematics offerings. Expect competition and opportunities in payment solutions, FinTech, InsurTech, “RegTech” in addition to loyalty program providers. Current revenue multiples average 1.8x and range between 0.4x - 6.5x. EBITDA multiples average 20.6x and range of 2.2x - 342.8x.

HEALTH CARE & LIFE SCIENCES

M&A volume was up 16% YoY in 2021, and with value up 44% YoY, with multiples at an all-time high. Record levels of M&A with 25 IPOs / SPAC mergers, 502 financings and 326 M&A transactions. Activity varies within the industry but expect competition and opportunity in Provider Tech, Digital Therapeutics, Tech-Enabled & Value Based Care providers, Pharma-Tech and Wellness. Declining sectors include Healthcare Staffing, Home Health, Rehabilitation and Dialysis. Current revenue multiples average 0.9x and range between 0.2x - 3.0x. EBITDA multiples average 8.4x and range of 2.1x - 47.3x.

HOSPITALITY, TRAVEL & TOURISM

Growth is being driven by increased vaccinations, warmer weather, acceleration of ghost kitchens and virtual brands, continued to improve month-over-month. Current revenue multiples average 0.9x and range between 0.3x - 3.2x. EBITDA multiples average 5.2x and range of 1.0x - 15.4x.

INDUSTRIALS, MANUFACTURING & MATERIALS

Despite supply chain challenges and labor shortages, industrial M&A activity continues at a frenzied pace. Industrial companies are expected to continue and to use M&A to develop new capabilities, expand near shore or reshoring investments, and enter new markets. In 2021, approximately two-thirds of the deals enabled acquirers to expand into a new business or geography, or develop a capabilities like the Internet of Things (IoT), artificial intelligence, connectivity and automation. Many manufacturers, not expecting a near-term labor solution are investing in robotics and automation. Current revenue multiples average 8.0x and range between 0.04x - 104.1x. EBITDA multiples average 9.9x and range of 1.6x - 245.6x.

MARKETING & ADVERTISING

Current revenue multiples average 0.9x and range between 0.5x - 1.6x. EBITDA multiples average 6.8x and range of 4.5x - 11.3x.

MEDIA & TELECOMMUNICATIONS

Media companies are buying targets that allow them to move beyond video and audio tap into the increased demand for content creation and consumption with acquisitions in gaming, fitness, betting, and location-based entertainment. Telco opportunities in integrated operators, tower and fiber assets are attracting competition from strategics. Additionally, many operators face balance sheet and rating constraints as they accelerate the build-out of new networks, making off-balance sheet joint ventures more attractive. Current revenue multiples average 1.6x and range between 0.4x - 4.1x. EBITDA multiples average 10.0x and range of 2.2x - 59.1x.

REAL ESTATE, ENGINEERING & CONSTRUCTION

Opportunities in the construction of data centers, pharmaceutical manufacturing and distribution centers. Increases in work from home and interest in improved indoor air quality and energy efficiency is expected to specifically benefit HVACR and Mechanical, Electrical, Plumbing, and Fire (MEP/F) and specifically unified thermal moisture wrapping solutions, pre-insulated wall components, and modular and pre-fabricated construction components. Current revenue multiples average 0.6x and range between 0.3x - 2.1x. EBITDA multiples average 5.1x and range of 2.0x - 31.3x.

RETAIL, WHOLESALE & CONSUMER SERVICES

Retail sales were up 0.5% in March MoM, below the 0.6% forecast. Sales excluding auto sales and gasoline were up 0.2%. Gas stations saw the biggest surge in sales - up 8.9% from MoM and 37% YoY. Total sales excluding gasoline fell 0.3%. Grocery store sales up 1.3% MoM and nearly 10% YoY. Higher food prices haven’t kept people from returning to restaurants, which saw sales increase almost 20% YoY. Apparel sales were up 2.6%, and spending on sporting goods and hobbies climbed 3.3%. Data from the Census Bureau Current revenue multiples average 0.6x and range between 0.1x - 3.4x. EBITDA multiples average 5.5x and range of 1.6x - 118.8x.

TECHNOLOGY

Expect competition from strategics which represented ~95% of 2021 M&A. Current revenue multiples average 2.5x and range between 1.6x - 3.4x. EBITDA multiples average 11.4x and range of 6.7x - 15.0x.

TRANSPORTATION, LOGISTICS & PACKAGING

Transportation & Logistics M&A continues at a more moderate pace when compared to 2021. Strategics continue to represent the majority of the transactions as they aim to expand and gain market share through M&A. Expect opportunities and competition in trucking, Air & Express Delivery Services and specialty Third-Party Logistics (3PL). Current revenue multiples average 0.9x and range between 0.3x - 3.4x. EBITDA multiples average 6.3x and range of 1.8x - 40.0x.

WASTE MANAGEMENT & RECYCLING

Increased consumption and e-commerce has led to rising waste landfill volumes. Recycled material volumes are rising, driven by increased demand for circular economy solutions and material recovery, especially for electronics. Current revenue multiples average 1.1x and range between 0.6x - 3.0x. EBITDA multiples average 7.1x and range of 3.6x - 13.7x.

*Unless otherwise stated, all figures are for the United States. Industry data sources are provided and often are provided by Business Valuation Resources and Aswath Damodraran of NYU.

The contents of this newsletter are intended for the use of Red Forest Capital Newsletter Subscribers. Access to the Knowledge-base and to materials included in this newsletter is limited. Previous editions can be found at redforestcapital.com.

April 2022

M&A, PRIVATE EQUITY & INDUSTRY UPDATES

May 2022

March 2022