• Third, as recently highlighted by our
colleagues at GF Data, the mindset of
business owners seems to be changing—they are more interested in staying active in business later in life. The
freeing effects of virtual office technologies allow them to stay engaged while
taking more time for themselves, their
families and other interests. These remote options, paired with the first two
themes, are resulting in business owners holding onto their companies longer
Meanwhile, buyers are responding to
the challenging environment, in part by
showing a willingness to pay more. The
average EBITDA multiple increased by 0.7
times EBITDA last year to reach an average of 6. 7 times (source: GF Data), and it
appears pricing will continue to increase.
It is now common to see private equity
firms pay in excess of 10 times EBITDA
for coveted properties. Adding fuel to the
fire, business executives’ confidence in the
economy is rising, aided by momentum
seen in key economic indicators, such as
GDP, industrial production, durable goods
sales, inventories and others. We see this
in our BDO executive surveys and anecdotally in our daily client work.
Higher prices and an improving economy appear to be a winning combination,
causing business owners to rethink the
aforementioned themes. The evidence is in
the deal count for the first quarter of 2014.
Our preliminary analysis indicates that
closings were up nearly 17 percent during
the quarter compared to a year earlier, according to S&P Capital IQ and BDO Capital
Research. Even more interesting, closings
involving a private equity firm, which accounted for approximately 38 percent of
the total, were up nearly 30 percent from
the first quarter of 2013.
This rise in activity, combined with
the size of the collective deal pipeline
here at BDO, gives us cause for optimism.
As such, we see a continuing uptrend in
middle-market M&A activity in the
coming months. //
BDO Capital Advisors LLC, a FINRA/SIPC
member, is a separate legal entity and an affiliated company of BDO USA LLP, a Delaware
limited liability partnership and national professional services firm.
Dan Shea is a Managing Director with BDO
Capital Advisors LLC, a member of the Private
Equity Practice at BDO and a member of
ACG Los Angeles. He can be reached at
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