Snappy Valuations in PRIVATE Markets

A slide is worth a thousand words. See here.

More Snappy Premiums in the Public Markets…

A slide is worth a thousand words. See here.

Slowly but surely, life.

Confidence in the near-term economy is solidifying, as is the realization that medium term growth prospects are tepid. M&A and financing transaction valuations have strengthened somewhat over the last few months, activity is moving beyond the best and scarcest assets, urgency is close to 2005-2007 levels, and except for bank lenders the number of buyside participants is increasing. There is a shortage of investors/acquirors for earlier-stage assets and an emerging glut of interest in later stage entities. Large cap public M&A and private financing continue to be activity leaders, with mid-market and private company M&A emerging rapidly.

We told you so! More on Public Backlash

Yes, we’re shameless. But there’s no shame in pointing how prescient our 2008 client thought pieces. Here’s an extract from October 2008. The “Rescue Plan” was our phrase for the attempts to save the financial system:

TARP “optics” look terrible to the average voter. “We made massive amounts of money making what turned out to be capital-destroying, destabilizing decisions, and now Main Street better save us for its own sake.” No concrete evidence or historical fact has been given to connect TARP to Main Street benefits. We encourage you to listen to the detailed Congressional testimony by Paulson/Bernanke and review various trade journal articles. Everyone speaks generally in terms of “confidence” and dire consequences of inaction, but without some examples or evidence, the logic for TARP to the taxpayer is circular: Congress is taking a huge, almost all-or-nothing pot-shot at a plan to help Main Street avoid potential pain by sticking it with financial exposure today, with the only certain beneficiaries being those who contributed to and benefitted from the causal factors of the crisis.

We told you so! Profligacy…

Yes, we’re shameless. But there’s no shame in pointing how prescient our 2008 client thought pieces. Here’s an extract from October 2008. The “Rescue Plan” was our phrase for the attempts to save the financial system:

The Rescue Plan, especially if ineffective, will be great sustenance for profligate spending and anti-business sentiment.

First, the spending floodgates have been flung open. Two immediate examples are the $25BN low-interest loan to the auto manufacturers to “develop energy efficient vehicles” … It will be difficult to defend against additional stimulus spending, especially if they have a more direct bearing on jobs and individuals than does TARP. The consequences of runaway deficit spending have been firmly established: higher cost of capital, increased taxes and/or inflation.

We told you so! Popular backlash…

Yes, we’re shameless. But there’s no shame in pointing how prescient our 2008 client thought pieces. Here’s an extract from October 2008. The “Rescue Plan” was our phrase for the attempts to save the financial system:

The Rescue Plan, especially if ineffective, will be great sustenance for profligate spending and anti-business sentiment.

… if the Rescue Plan is ineffective, or if the Treasury suffers substantial losses on the TARP plan, we would not be surprised if existing negative public sentiment were turned into action detrimental to business interests. It will be childishly simple to demonize TARP as a give-away to Wall Street, Fat Cats, Big Business, … Pick your favorite derogatory phrase. We have difficulty imagining politicians standing in the way of (vengeful) regulation in the short term and significant business and executive oriented taxation in the medium term as a budget-mending action.

If you think we are exaggerating the likelihood and severity of a public backlash, consider that for $50BN, two million people could each receive $30,000 of unemployment and retraining benefits. Sophisticated retrospective arguments about the rationale for “Wall Street” rescues carry little water when, presuming $250BN of total intervention cost, 10 million people could have been provided assistance for the same cost.

Mid-Market M&A and Economic Update

More on mid-market M&A industrials at www.gtkpartners.com/mna.pdf and technology at www.gtkpartners.com/tmna.pdf.

For additional reports, updates and our recent deals, please visit www.gtkpartners.com, including the blog section.

Snappy Premiums in the Public Markets

Large cap and public company consolation has been surprisingly strong with extremely strong premiums paid even with a purely private equity buyer group (see data www.gtkpartners.com/pp.pdf). Mid-cap public company consolidation seems next.

Hot Spots

Within healthcare IT, revenue cycle management concepts are strong. Within technology, mobile/wireless and advertising concepts are strong. In the enterprise IT stack “cloud computing” from the semi components through services is very active (especially around the desktop, and public/private crossover opportunities).

Hot Spots and Valuation Ranges

Our activity, which started picking up in late January with private company sellsides, now includes financing and potential divestitures of healthy divisions. We see a strong rebound in structured financing availability for private companies, especially at and above the $10-$20MM range. Private company valuations, broadly speaking, are in the 2-6x revenue range, with communications at the low end and healthcare IT at the high end (especially anything with $20MM+ revenue scale). Industrial asset valuation ranges are in the 4-8x EBTIDA range with scale a key driver of valuation (e.g. a few hundred million of revenue for the top end of the valuation range).