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Steady Turnaround in Middle-Market Mergers, According to Babson Research
The market for Mergers & Acquisitions (M&A) is clearly improving and will continue throughout 2011-2012 according to a survey conducted by MBA students and Professor Kevin J. Mulvaney at Babson College in collaboration with members of The Association for Corporate Growth and Exit Planning Exchange.
The survey found a number of significant factors supporting the step up including:
- Steadily increasing senior debt availability
- Economic improvement
- New strategies for market leaders toward revenue and market share growth and
- Continuation of the capital gains tax rate to the end of 2012.
The survey also projects an increase in large corporate deals in the next 2 years and the return of private equity firms to the middle-market beginning in the 2nd half of 2011.
Implications for Business Owners and Advisors to Buyers and Sellers
- The M&A market in the coming years will not resemble past economic improvement cycles.
- Valuations will increase slowly as they are held back by fewer buyers and reduced financing.
- Business owners should plan for timing that is 'right for them' and not expect sharp improvements in valuation.
- Advisors must do more to improve their approach to partnering with owners and understand the "triangle of planning" - experienced lawyer plus experienced CPA plus skilled financial advisors - equals a higher probability of a successful transaction.
- Business owners need more education to manage the increased complexities of the exit process, and need to build their teams earlier to insure a successful exit or capital restructuring.
About The Survey
Babson College MBA students, Babson Professor Kevin J. Mulvaney, and the Association for Corporate Growth and Exit Planning Exchange surveyed and conducted interviews with more than 200 leading national professionals involved in middle-market M&As. Their goal was to define the status of the M&A market and project the outlook for the rest of 2011.
Survey respondents included a national set of leading boutique investment banking firms, large business brokers, CPAs and lawyers specializing in M&A, and other professionals who work with buyers and sellers in M&A transactions. The survey tried to glean the trends and forecasts for firms with enterprise values from 5MM to $100MM specifically.
Additional Findings Impacting Business Owners
- Valuations have begun to rebound in just about every industry. Distribution multiples of EBITDA increased by .5X EBITDA in 2010 and will continue to climb adding another .5X to EBITDA multiples in 2011. This trend in distribution valuations is triggered by the strategic acquisitions which normally occur at the beginning of the rebound from a recession as larger companies seek to grow market share and revenue by acquiring industry competitors.
- Service firm acquisitions continue to show strength as was indicated in the 2010 survey. 81 percent of respondents to the survey indicated work with service companies while 71 percent are active with distributors and 52 percent with retailers. The weakest sector is manufacturing per the survey responses.
- 78 percent of respondents expect valuations to increase in most industry sectors in 2011 driven by more financial and strategic buyers active in the M&A markets in 2011-2012.
- Premiums are being paid for companies which rebounded BOTH in revenue and EBITDA levels from 2009 to 2010 and which project and can document stronger performance in 2011. This is significant as it should help business owners focus their strategic plans.
- Smaller companies, as noted in last year's survey still are not benefitting from the uptick in valuations and M&A activity compared with middle-market companies. We project the second half of 2011 will be the time when smaller companies (($1-10MM valuation) will see the beginning of a more favorable market for exit.
- Acquisitions of middle-market companies by financial buyers (i.e. private equity firms) are still at a low level caused primarily by the lack of senior debt financing. The good news is 70 percent of survey respondents project increased bank lending for middle-market deals as 2011 unfolds. With the new SBA loan limits increased to $5MM, smaller companies will see more buyers in the market in the second half of 2011 bolstered by an ability to get increased favorable financing from active SBA lenders.
- Deal structures are still very conservative and are projected to continue conservative for the rest of 2011. The equity contribution for financial buyers of businesses increased to between 20-40 percent in the last few years and few respondents see this changing in 2011. Due diligence was documented in past surveys to have increased deal completion time by an additional three months caused by concerns about the trajectory and strength of the economy. Nothing has changed in the current survey relative to due diligence rigors, higher percentages of deferred money relative to the purchase price (20-30 percent), or challenges in negotiations to get a deal completed. 50 percent of survey respondents projected due diligence detail may actually increase further in 2011.
Additional Findings Impacting Business Advisors
- There continues to be frustration cited by advisors to business owners with lack of planning by owners contemplating or planning an exit. Over 50 percent of advisors feel the planning process with business owners needs to be more effective and 80 percent of advisors to business owners cite a need to improve their business model in this area.
- There is still a perception of unrealistic elevated valuation expectations by owners thinking about exiting their business. Over 50 percent of advisors see this as a key preparation area with owners considering exit. Valuations will not rebound quickly in most industries and thus planning for the complexity of the buyer/seller negotiation is considered a key early discussion in tomorrow's M&A market.
- 72 percent of advisors responding to the survey cite the slow and challenging negotiations between buyers and sellers as a major challenge in the 2011 M&A market. Deal structure complexities in today's M&A market demand that owners surround themselves with a skilled and experienced legal, accounting/tax and financial advisor team. None of the respondents to the survey see these complications reducing materially in 2011.
- Advisors in the M&A field are still concerned with their own firm's strategic plan. 30 percent of respondents say they are reviewing their partners in M&A deals due to the challenges of getting a deal done between willing buyers and sellers. Although this is down from 65 percent two years ago, the 30 percent was unchanged from the 2009 survey which reflects the weakened demand for deals and the challenges of successfully concluding transactions.
Thursday, March 17, 2011
Venture capital is very important for women entrepreneurs
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Women own about 41 percent of all privately held companies in the United States,according to the Center for Women's Business Research but women's access to venture capital lags far behind. Only about 11 percent of U.S. firms with venture capital backing in 2009 had current or former female CEOs or founders, according to data from Dow Jones VentureSource.
Women entrepreneurs have made great strides in starting their own businesses in recent years, but they confront massive challenges in securing venture capital funding, according to Helen Greiner, cofounder of iRobot and winner of the International Business School's Asper Award for Global Entrepreneurship this year.
"Venture capital is very important. The biggest issue entrepreneurs face is funding, and it is harder as a woman to get it," said Greiner who spoke at a panel discussion at the business school featuring prominent women entrepreneurs. Recalling early, meager days of iRobot, she added: "We took very low salaries and ran up a lot of credit card debt. Not having payroll in the bank every month is a drain on your motivation and psyche."
Today iRobot - most famous for Roomba, the autonomous vacuum, and PacBot, a series of military robots stationed in Iraq and Afghanistan -- is worth more than $784 million.
Greiner suggested would-be entrepreneurs take better advantage of networking opportunities with potential mentors and venture firms because access to these groups provides useful vetting of business ideas. Still, she said, most companies don't end up doing exactly what they said they'd do in their business plan.
"They learn from being in business, they learn from their customer base. You always need to do the best thing at that point in time [for your company] even if it wasn't in your business plan," she said.
Greiner spoke on a panel before a crowd of Brandeis students, alumni and officials, including Bruce R. Magid, dean of the business school, and Leonard J. Asper '86, former President of CanWest Global Communications, Canada's largest media conglomerate, who established the Asper Center for Global Entrepreneurship.
Other panelists included Una Ryan, president and CEO of Diagnostics For All, a non-profit that creates low-cost, easy-to-use, medical diagnostics for the developing world, and Daphne Zohar, founder and managing partner of PureTech Ventures, a Boston-based early-stage investment firm that specializes in novel therapeutics, medical devices, and research technologies. Irene Abrams, Associate Provost for Innovation, was moderator.
The discussion covered topics ranging from the kinds of skills that MBA students bring to start-ups, to the defining characteristics of entrepreneurs, to challenges unique to female business owners.
Zohar asserted that the benefits of being a female entrepreneur far outweigh the costs.
"It is an advantage and it is relevant," she said. "It's an opportunity to stand out and do something different. People want to help women entrepreneurs so it may be easier to get that first meeting."
Ryan, a former academic, said: "To be successful, you need two things. You need the right technology -- something that intrinsically lowers the cost of goods. And you also need the right business plan. [You need] something sustainable, something that will outlive you."
She said Brandeis students with a good idea for a business should "Just do it. Get started. And don't give up until you're so wealthy that you can help someone else."
The Asper Award is given annually to an entrepreneur who achieves outstanding success in the global marketplace through creative marketing and business strategies.
Women own about 41 percent of all privately held companies in the United States,according to the Center for Women's Business Research but women's access to venture capital lags far behind. Only about 11 percent of U.S. firms with venture capital backing in 2009 had current or former female CEOs or founders, according to data from Dow Jones VentureSource.
Women entrepreneurs have made great strides in starting their own businesses in recent years, but they confront massive challenges in securing venture capital funding, according to Helen Greiner, cofounder of iRobot and winner of the International Business School's Asper Award for Global Entrepreneurship this year.
"Venture capital is very important. The biggest issue entrepreneurs face is funding, and it is harder as a woman to get it," said Greiner who spoke at a panel discussion at the business school featuring prominent women entrepreneurs. Recalling early, meager days of iRobot, she added: "We took very low salaries and ran up a lot of credit card debt. Not having payroll in the bank every month is a drain on your motivation and psyche."
Today iRobot - most famous for Roomba, the autonomous vacuum, and PacBot, a series of military robots stationed in Iraq and Afghanistan -- is worth more than $784 million.
Greiner suggested would-be entrepreneurs take better advantage of networking opportunities with potential mentors and venture firms because access to these groups provides useful vetting of business ideas. Still, she said, most companies don't end up doing exactly what they said they'd do in their business plan.
"They learn from being in business, they learn from their customer base. You always need to do the best thing at that point in time [for your company] even if it wasn't in your business plan," she said.
Greiner spoke on a panel before a crowd of Brandeis students, alumni and officials, including Bruce R. Magid, dean of the business school, and Leonard J. Asper '86, former President of CanWest Global Communications, Canada's largest media conglomerate, who established the Asper Center for Global Entrepreneurship.
Other panelists included Una Ryan, president and CEO of Diagnostics For All, a non-profit that creates low-cost, easy-to-use, medical diagnostics for the developing world, and Daphne Zohar, founder and managing partner of PureTech Ventures, a Boston-based early-stage investment firm that specializes in novel therapeutics, medical devices, and research technologies. Irene Abrams, Associate Provost for Innovation, was moderator.
The discussion covered topics ranging from the kinds of skills that MBA students bring to start-ups, to the defining characteristics of entrepreneurs, to challenges unique to female business owners.
Zohar asserted that the benefits of being a female entrepreneur far outweigh the costs.
"It is an advantage and it is relevant," she said. "It's an opportunity to stand out and do something different. People want to help women entrepreneurs so it may be easier to get that first meeting."
Ryan, a former academic, said: "To be successful, you need two things. You need the right technology -- something that intrinsically lowers the cost of goods. And you also need the right business plan. [You need] something sustainable, something that will outlive you."
She said Brandeis students with a good idea for a business should "Just do it. Get started. And don't give up until you're so wealthy that you can help someone else."
The Asper Award is given annually to an entrepreneur who achieves outstanding success in the global marketplace through creative marketing and business strategies.
Friday, March 11, 2011
Article by CEO Australian Private Equity & Venture Capital Association
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In the March issue of Business Review Australia, the CEO of the Australian Private Equity & Venture Capital Association (AVCAL), Dr. Katherine Woodthorpe, reveals an overview of the venture capital industry.
Dr. Woodthorpe hits on a series of trends, challenges and success stories impacting Australia’s VC sector. “Successful Venture Capital investments have had immense follow-on effects over the long-term such as job creation, tax revenue, and the other broader economic effects. One of the greatest challenges facing the Australian Venture Capital sector is the shortage of capital. Over the past decade, VC funds have raised capital from superannuation funds, endowments, and the Government,” Dr. Woodthorpe says in the article.
She names Resmed, Cochlear, SEEK, Look Smart, Pharmaxis, Peplin, and Gekko Systems as some of the most high-profile success stories in the VC industry.
Read the full article here
In the March issue of Business Review Australia, the CEO of the Australian Private Equity & Venture Capital Association (AVCAL), Dr. Katherine Woodthorpe, reveals an overview of the venture capital industry.
Dr. Woodthorpe hits on a series of trends, challenges and success stories impacting Australia’s VC sector. “Successful Venture Capital investments have had immense follow-on effects over the long-term such as job creation, tax revenue, and the other broader economic effects. One of the greatest challenges facing the Australian Venture Capital sector is the shortage of capital. Over the past decade, VC funds have raised capital from superannuation funds, endowments, and the Government,” Dr. Woodthorpe says in the article.
She names Resmed, Cochlear, SEEK, Look Smart, Pharmaxis, Peplin, and Gekko Systems as some of the most high-profile success stories in the VC industry.
Read the full article here
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