Private Deal Update: Multiples Rising in Midmarket

For Immediate Release August 22, 2013

Naples, FL - Merger and acquisition values and activity are heating up.

That is the analysis from the recently released report on business transactions.

The third quarter Private Deal Update by Pratt’s Stats show that transactions of companies in the $1-5M range are now selling for 4.38 times their cash flow (EBIT) versus a 3.78 multiple last year. These companies also are selling for 48% of net sales versus 38% last year. Pratt’s Stats database of private company acquisitions provides general trend information on valuation multiples and profit margins for transactions in the M&A (mergers and acquisitions) database. M&A advisors can use the information to conduct comparative analysis to help determine the value for owners trying to sell their companies.

Ed Towers, President of Tiger Brokerage Group, says “The manufacturing sector has the highest multiple of cash flow 2013 to date. The wholesale trade sector has risen the most this year. The multiple that wholesalers are selling for now is 4.40 while it was only 3.48 a year ago.” Tiger Brokerage Group is an M&A advisory firm headquartered in Naples.

“Clearly M&A action is heating up”, Towers reports. There are 13,769 transactions in Pratt’s Stats database of privately held companies. In recent years, companies with sales over $5M tended to have the largest multiples.

WHAT YOU SHOULD LOOK FOR IN A MERGER & ACQUISITION INTERMEDIARY - Check to see if the candidate: • Has many years of experience as M&A Intermediary. - Not just a main street business broker. - Interests and background beyond that of a real estate broker. • Has credential of Certified Business Broker (CBI) • Has history of success selling mid-sized companies. • Works nationwide, not just locally. • Emphasizes methods to maintain confidentiality. • Prepares written valuation (including comparables in SIC industry). • Recasts financials to increase the value. • Prepares a written Marketing Plan with a timetable. • Prepares professional and comprehensive Descriptive Offering Report (“book”). - Describing historical results but selling the future opportunity. • Understands the value of goodwill. • Optimizes the value and terms in the transaction. • Has appreciation of the tax ramifications to parties and has relationships with experts. • Utilizes multiple modes for marketing your company. • Has a proprietary database of a large number of potential buyers (including PEGs, VCs, and registered buyers). • Can evaluate the pros and cons of various alternatives. • Belongs to M&A Source, the world’s largest association of intermediaries. • Possesses strong negotiating skills. • Enjoys being a middleman (buffer) between parties. • May allow the seller to be the “back stop” in the negotiations. • Can coordinate the sell-side activities with associated specialists and advisors: - CPA/accountant - Tax attorney - Estate attorney - M&A transaction attorney - Escrow officer - Insurance carrier/agent - Real estate landlord - Lender/banker - Financial planner • More interested in closing a transaction than advising. • Has broad background including sales experience. • Has actually bought & sold their own company. • Is a team player. • Relates to owner’s unique situation, including emotional issues. • Is preferably a M&A Master Intermediary (M&A MI).