March 2022

Written By Jason Kania

While we are deeply dismayed by Russia’s invasion of Ukraine - this newsletter alone will not influence the outcome. More than a million people have fled Ukraine since the war started, civilian casualties are rising, and in Kyiv alone, an estimated 15,000 people are now sheltering in the subways. You can support Ukrainian refugees through the following programs; UNICEF, Come Back Alive or UN Refugee Agency.

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

SELECT DEALS related to industries of interest for Red Forest Capital funds.

INTERESTING TOPICS. More included in each Industry below.

INTERESTING TECH & PRODUCTS

M&A, PRIVATE EQUITY & INDUSTRY UPDATES

AEROSPACE, DEFENSE, GOVERNMENT, CIVIC & SOCIAL SECTOR

As described in the 202202 State of Competition within the Defense Industrial Base from the Department of Defense, the DoD and the Pentagon plans to toughen oversight of M&A among defense contractors and take other steps to increase competition in the industry. Companies and participants remain challenged by program delays, technical difficulties, supply chain problems, and changing requirements that lead to cost overruns and potentially affect profitability. 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

Inflation has risen sharply with most companies passing through the costs through price adjustments. 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

Emerging quick-commerce helps established retailers expand existing customer bases and core capabilities, such as product mix, local delivery and delivery logistics. Expect competition and opportunities for small brands as large consumer goods companies build portfolios. Consumer goods that are frequent acquirers outperform their peers, with twice the sales growth rate, 1.8x profit growth, and 1.2x TSR growth than the industry average. 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.

Jason Kania
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