February 2022

Written By Jason Kania

2021 M&A volume and value hit record highs. By most measures M&A volume increased 20% and value increased 40% value year over year (YoY). As we continue into 2022, there are likely to some new headwinds caused by increased interest rates, tax changes, supply chain issues and political division. Despite these headwinds, the majority of 2022 M&A forecasts are bullish.

Expect M&A competition to increase with continued capital overhang, dry powder of $2T, expanding M&A appetites from committed funds and strategic buyers in addition to 55% of sellers running a process. In the coming months, it will serve you well to anticipate continued confidence on the part of sellers who expect to not only close a deal, but to also command a healthy purchase price.

According to a Citizens Bank 2021 survey of 400 US middle-market company CxOs and PE firms the sellers market is expected to continue. Among the middle-market CxOs surveyed by Citizens Bank, 40% are seeking or open to being acquired (up from 33% YoY). And, almost 40% of middle-market CxOs aim to sell the entire business. As seen in prior years, and in addition to the financial benefit of an exit, most sellers are motivated primarily due to the lack of a succession plan, burnout or a desire to pursue other opportunities.

A continuation of these trends will likely require more research, tenacity and creativity on your part. Contact us if and when we can be of help. In the meantime, please find a selection of resources below to support your efforts. 

Remain steadfast and good luck!!

SEARCH FUND SPOTLIGHT. Selection of Topics and Deals that correspond with industries of interest to search funds.

INTERESTING

LIGHTER FARE

REMINDER. TAXES

In August, the Tax Court determined that future expenses during the search phase may need to be capitalized and amortized once a fund acquires a business. Contact your accountant for further guidance. To help, following is a summary of the case and a summary from Mowery & Schoenfeld.

M&A, PRIVATE EQUITY & INDUSTRY UPDATES

2021 global M&A value increased 43% YoY to over $4T. Approximately 30% of deals are pending, ~70% of deals were both announced and completed in 2021, and ~$240B in deals that were terminated after signing. The dominant sectors in 2021 include; Consumer Discretionary, Health Care, Industrials, Information Technology, and Financials.

AEROSPACE, DEFENSE, GOVERNMENT, CIVIC & SOCIAL SECTOR

YTD H2 2021 M&A deal volume rose by ~140% YoY with a post-pandemic recovery will likely remain a key driver for M&A in commercial aerospace, geopolitical tensions could continue to support deal-making in defense. 2021 EBITDA multiples declined to 14x from 14.7 YoY. Further, Aerospace & Defense EBITDA multiples are estimated at 14.01x; Airlines EBITDA multiples are estimated at 24.89x; and Airport Operators & Services EBITDA multiples are estimated 24.89x.

AGRICULTURE & FOOD

Q3 2021 M&A volume rose 86% YoY with financial buyers accounting for ~14% of all M&A. 2021 EBITDA multiples increased to ~17x from 14x YoY. Upstream/farm and downstream/table investing broke records and larger deals occurred throughout most sub-segments. Low to mid-market opportunities remain in “midstream” between the farm (or the lab) and consumer and specifically; automation, logistics and transport, food processing, cold chain storage, food waste mitigation, and food safety.

AUTOMOTIVE & ASSEMBLY

H2 2021 M&A deal volume fell by 15% YoY but deal value increased 190% YoY. EBITDA multiples increased to ~14x from 10x YoY. Manufacturers comprised the largest segment with $27B of total deal value, primarily due eight (8) SPAC deals in electric vehicle (EV) manufacturers and charging solutions. Automotive dealers and manufacturers have outperformed the market over the past three years, while automotive suppliers have underperformed the broader market.

B2B, CONSULTING & PROFESSIONAL SERVICES

YTD H2 2021 M&A remained steady at ~400 transactions yet transaction value fell by 51% YoY. Median revenue multiple remained steady at 1.3x YoY and the median EBITDA multiples rose to 18x from 10x YoY. The Staffing sector M&A volume increased by 54% YoY with Information Technology staffing remaining the most attractive category. The Professional Information Services sector commands the highest EBITDA multiple at ~32x.

EDUCATION, TRAINING & SKILL DEVELOPMENT

2021 M&A volume is up 6% YoY, with value up 41% YoY. Revenue multiples increased to 3.5x from 2.5x YoY. EBITDA multiples increased to ~24x from 15x YoY. Higher Ed Media and Tech saw the largest YoY volume increase, rising to 54% to to 88% of industry deals. K-12 Media and Tech M&A volume increased 56% YoY, surpassing Professional Training Services as the most active segment in 2021.

ENERGY, ENVIRONMENT & RELATED

2021 M&A activity in aggregate reached record levels which has been led by solar, energy storage and supported by the Infrastructure Investment and Jobs Act along with renewable and decarbonization targets. EBITDA multiples increased slightly to remain ~11x, primarily led by Renewables and Equipment services.

FINANCE & INSURANCE  

2021 Financial Services M&A volume in North America increased by 21% YoY and transaction value increased by 67% YoY. EBITDA multiples declined slightly to remain ~19x, primarily led by declines in Investment Banking & Brokerage Services and Reinsurance. By comparison, FinTech M&A volume increased by 2% YoY and transaction value declined by 42% YoY. FinTech Revenue multiples rose to 3.1x from 3.0x.

HEALTH CARE & LIFE SCIENCES

2021 M&A volume fell 5% YoY, with value up 196% YoY. Revenue multiples are up to 3.6x and EBITDA multiples 15.3x. For example; Assisted Independent Living EBITDA multiples are estimated at 24x; CRO EBITDA multiples are estimated at 25x; HCIT EBITDA multiples are estimated at 23.5x; Medical Equipment EBITDA multiples are estimated 20.2x; Wellness EBITDA multiples are estimated at 22x. Additional, growth sectors include Acute Care, Biotech, Managed Care and Telemedicine. Declining sectors include Healthcare Staffing, Home Health, Rehabilitation and Dialysis.

HOSPITALITY, TRAVEL & TOURISM

2021 Restaurant M&A volume increased 112% YoY, with strategic buyers accounting for 86% of deals. EBITDA multiples rose to 22x from 13x YoY, primarily led by increases in Casinos & Gaming and Hotels, Motels & Cruise Lines. The restaurant sector sales continues to recover with December sales increasing ~11% on a two-year basis and EBITDA multiples increasing by ~50% to ~22x. Growth is being driven by increased vaccinations, warmer weather, acceleration of ghost kitchens and virtual brands, continued to improve month-over-month.

INDUSTRIALS, MANUFACTURING & MATERIALS

2021 M&A transactions increased ~120% YoY, with value up 173% YoY. Revenue multiples are up to 4.2 from 3.0x YoY. EBITDA multiples rose to ~15x from 11x YoY, primarily led by increases in Electronic Equipment, Components & Parts and Heavy Electrical Equipment.

MARKETING & ADVERTISING

YTD H1 2021 M&A deal volume fell by 25% YoY and deal value increased 40% YoY. Median revenue multiple remained constant at 3.2x YoY and the median EBITDA multiple increasing to ~13x from 11x YoY.

MEDIA & TELECOMMUNICATIONS

2021 Media and Marketing M&A volume decreased by 14% YoY yet transaction value increased by 17% YoY. Revenue multiples rose to 2.9x from 2.5x and EBITDA multiples increasing slightly to ~11x from ~10x.

REAL ESTATE, ENGINEERING & CONSTRUCTION

Q3 2021 M&A deal volume increased by 6% YoY but deal value increased 70% YoY.  Median EBITDA multiples rose to 19.3x from 10.4x YoY. Construction Spending and the Infrastructure Bill has created optimism against rapidly rising labor and material costs. Expect opportunities in companies who provide near-shoring and on-shoring of the supply chain solutions, unified thermal moisture wrapping solutions, pre-insulated wall components, and modular and pre-fabricated construction components.

RETAIL, WHOLESALE & CONSUMER SERVICES

Online spending increased by ~14% YoY. Median EBITDA multiples rose to 11.5x from 10.2x Supply remains an issue, yet price changes vary. The biggest price increases are in apparel ~17%; flowers and related gifts, up 15.5%; sporting goods, up ~7%; and medical equipment and supplies, up 5.7%. The biggest price declines were in computers, down 5.6%; jewelry, down 3.7%; and books, down 2.3% YoY. Online Prices Hit Record Levels as Shortages Bite Holiday Shoppers

TECHNOLOGY

2021 Tech M&A volume rose by 9% YoY with deal value increasing ~66% YoY to ~$540B.  Median revenue multiples rose to 3.9x from 2.6x YoY and the median EBITDA multiples increasing to 40x from 20x YoY, primarily led by software (31x) and online services (44x).

TRANSPORTATION, LOGISTICS & PACKAGING 

2021 EBITDA multiples rose to ~13x from 10x led by Highways & Rail Tracks EBITDA multiples increased to ~17x from ~11x YoY.

WASTE MANAGEMENT & RECYCLING

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

Jason Kania
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