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General, Business Valuation, Mergers and Acquisitions, Mirus Capital Advisors, Selling a Business, Healthcare, Technology

Risk-Aversion Dwarfed by Demand for Growth

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CEO’s are feeling increasing pressure from their shareholders to manufacture increasing levels of growth. To that end, there is a shift away from more conservative stock buy-back programs to riskier mergers and acquisitions, as demonstrated below.

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More specifically, closed US stock buy-back activity decreased precipitously from a high of $60B in Q2 2013 to $12M in Q2 2014. Whereas, total US aggregate transaction values increased by 77% from Q1 2013 to Q1 2014. This shift is also explained by the rising stock market, which has increased 31% over the last six quarters, making stock buy-back programs more expensive. Another consideration driving this shift is US corporate profitability and cash resources continuing to set all-time highs, as has been widely reported.  One key variable tempering even greater levels of deal value and volume is the valuation gap between the bid and ask. Generally speaking, we continue to be in a seller’s market whereby asset prices continue to climb simply because demand continues to outstrip supply.

We expect deal volume and values to continue to increase over the second half of 2014, following a strong first half of the year. M&A volume and value increased 10% and 35% respectively when comparing the 1H of 2013 to the 1H of 2014, driven by general increases across all sectors, with IT and Healthcare as key drivers. As alluded to above, valuations in these two sectors have risen over the same time period. In the healthcare industry median EV/EBITDA multiple from increased from 6-8 to 10-12. Similarly, in IT median EV/Revenue multiples increased from 1.5 to 2.5. In our own practice areas, we seen extremely high, strategic premiums paid for the right assets, due to competitive friction between multiple strategic and financial buyers. If you’re interested in learning more about some of the sectors where we remain active, like IT and healthcare, please check out our newest research here.