on September 25, 2013 by Billy Fink
Last night, Axial hosted a panel discussing exit strategies for portfolio companies. The panel — which was moderated by Jon Marino of theDeal.com — included John S. Castle of Branford Castle, Tim Shanley of Huron-backed Victoria Fine Foods, and Elgin Thompson of Marcum Cronus. Using their experiences as a buyer, operator, and intermediary respectively, the three discussed major trends and techniques currently impacting exit strategies.
Below are some of the key takeaways from the panel.
How is the overall M&A environment?
All three panelists agreed that the current M&A environment is relatively sluggish. With few quality companies coming to market, mostly attributable to the rush as the end of last year, there is a severe limited availability for activity. To further the problem, many companies are demanding exceptionally high multiples. Many investors are unwilling to pay the premium prices and instead are waiting on the sidelines for a return of normalcy — which is hopefully coming sooner rather than later.
Thompson, agreeing with the rising multiples, did not think that the quantitative easing program would have much impact in the middle and lower-middle markets. While minor ticks in basis points may have significant impacts for mega-mergers — like Vodafone and Kabel Deutschland — many smaller firms do not need to rely on the debt markets to fund the acquisition. As such, the higher multiples will remain prohibitive to activity.
How are bad companies getting high multiples?
The panelists explained that auctions are the likely culprit for the transactions with exceptionally high multiples. The right bidding war can help drive prices, especially if there is an irrational or inexperienced buyer in the mix. However, strategic acquirers are also somewhat culpable. Occasionally, a strategic will buy an otherwise unsellable company at an incredibly high multiple — typically just to prevent a competitor from acquiring the asset.