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Tech companies are facing a major challenges with fast moving market, new disruptive technologies and market new entrent, combined with the current uncertain market and political condition. from your prespective do you think it’s right to aquire now or wait and risk losing opportunty and potential market place if yes or no please state why you think so?
Thanks,
If a company has strong financials, it is absolutely a great time to prepare for the longer-term success coming out of a recession. Although financing terms may be elevated, valuations have dropped substantially from the last year (20%+) across a number of industries, making M&A targets more attractive. If a company has a more volatile revenue base and questions about its commercial viability, then it would not be a good time because of the uncertainty with the financial markets, and financing specific deals.
To answer this question, we must first look at the strategy for acquisitions. If the acquirer is a financial investor, then yes this could be a good time as valuations for most sectors are at all-time low. However financial investors are also asking themselves if the market could drop further and this increased uncertainty is also forcing most to hold back or wait and watch how the market moves. Covid followed by the Russia Ukraine war and all the resultant economic factors have made it extremely difficult for even the experts to predict how things will pan out in the short to medium term.
For strategic investors who are focused on the target they are considering, they are more guided by their current financial performance and long-term aspirations and may not be too concerned about whether or not it is the right time. On the other hand, if valuations are low, the target company and its shareholders may opt to wait for markets to improve so the deal may not materialize.
Looking at the history of M&A waves, we see that most of them took place in the post-crisis environment. The markets were optimistic, and interest rates were low.
We are now in the middle of the crisis: war, increasing interest rates, inflation, colossal debts, shiftings in industries, energy crisis. Not the best time to invest.
On the other side, if the M&A represents the perfect match (from a strategy point of view and all other aspects), maybe it´s worth thinking about.
Each M&A is very individual. But from a global economy point of view, I think now is the time to “wait & see” and prepare for the next step.
In my industry the multiples have been very high so far. I hope that in the current crisis, sellers will become more reasonable in terms of valuation. At the same time, financing is becoming more expensive so I will need to review the target leverage and possibly decrease it. Any point of view on the leverage ? In the current fiancial situation, should we go for deals with less leverage ?
With financing becoming expensive, it makes more sense to invest in more sustainable and profitable firms. However, it just throws good money after bad which defeats the purpose of acquiring a business in the first place.
I truly believe it is industry dependent. For example, if we are looking at buying a medical practice, now would be a good time as they note in many studies that Healthcare is recession proof. The status of the economy doesn’t cause less people getting sick. There may be other industries where it is important to take caution. To me hospitality may fall under this area.
I would say that this is totally depending on the industry. I would not invest into a tech-company at the moment – especially not block-chain related. Healthcare or pharma industry could be interesting at the moment.
Agree with Kenneth that it depends on due diligence. If the financial modeling supports the acquisition, then there could be a strong arguement that there is never a “bad” time to transact.
Depends on which industry, the firm’s financials (uncovered through DD), etc. There are way too many factors to consider, regardless of whether it is a “good” or “bad” time to invest due to macroeconomic conditions.
With this question I really want to think small. I know we are predominately focused on large entity transactions but I want to point this in a little bit different direction. the largest generation in America is the Baby Boomers and they are retiring and a blistering pace. 20% of all baby boomers are business owners and they want to retire and they want to sell their business however in most cases their children have no interest in running they business so baby boomers have a couple of options. First is to close the doors and just be done working, the other is to sell the business for profit and realize a bit more cash in their retirement. Now there is some challenges ahead of them if they want to sell meaning it takes an average of 11 months to sell a business and 1 in 11 will actually sell. What that tells me is it is always a great time to buy businesses because of the availability of businesses and they are likely being sold for less than their value because they want out. so I say BUY BUY BUY! 🙂
It is good time since the higher cost of capital would possibly translate to lower prices. The concern for economic recession may allow buyer to push for lower growth assumption in valuation.
Depending on the type of business, but in my opinion, in the tech industry, I would hold off for the cash-burning companies to continue burning their cash and then approach once they get to the point of needing another funding round.
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