Los Angeles, CA – October 28, 2024 – Dan Shea, Managing Director within Objective’s Investment Banking Group, was recently consulted by the LA Times Studios team in their latest Private Equity and M&A Strategies Roundtable, featured on the Advisors Page.
In this roundtable interview, Dan Shea joined other industry leaders to share his expert perspective on the evolving private equity and M&A landscape. Here are some of Mr. Shea’s key insights:
- What is the current state of the M&A landscape in 2024?
Overall, M&A continued to face headwinds in 2024, particularly in the first quarter, with deal volume and valuations remaining somewhat lower than historical averages. However, the tide appeared to turn in the second and third quarters, with deal activity shifting modestly upward. Further adding to the story, inflation and interest rates have declined in recent months and should result in additional deal volume gains in the fourth quarter, particularly once the national elections are behind us. Lastly, we sense that PE firms’ eagerness to invest is growing, in part due to the aging of uninvested capital pools, which will give a lift to M&A activity beyond 2024. - In what industries or sectors are you seeing the most M&A activity?
We’re seeing strong M&A activity in several sectors, with particular momentum in Essential Services, Health & Wellness, and Aerospace & Defense (A&D). Essential Services has remained resilient, with deal volume stabilizing at pre-COVID levels, driven largely by private equity interest in recession-resistant businesses like environmental services and maintenance. Valuations in this sector have also stabilized, with EBITDA multiples averaging in the mid-7s. In Health & Wellness, activity is being fueled by demand for organic foods, personalized health technologies and omnichannel businesses. Finally, the A&D sector is seeing consistent deal volume supported by increased global military spending, especially in areas like MRO services and information technology. These sectors are proving attractive for buyers looking for stable growth and long-term value. - In what ways do you engage with management teams to align their goals with your investment objectives?
As sell-side advisors, we work closely with management teams to align their efforts with a successful sale. This begins with in-depth discussions to understand the company’s value drivers, opportunities, challenges, customers, products/services, operations, team, financial history, growth prospects and certainly the desired outcome of the owners. For example, we recently advised a highly successful manufacturer whose success was primarily due to steadfast management focus on continuous product development and growing customer volumes. In part by emphasizing these key success factors with each prospective buyer, we were able to generate above-market offers and ultimately achieve an exceptional sale outcome for the owners. - How would you describe the private equity market’s changes over the last couple of years?
Over the past couple of years, the private equity market has experienced significant shifts driven by macroeconomic factors. Rising interest rates and inflation have increased the cost of capital, leading to more cautious dealmaking and lower valuations on average. At the same time, private equity firms are sitting on substantial dry powder, with record levels of uninvested capital waiting to be deployed. As a result, PE investors have shifted focus toward recession-resistant themes and sectors like Essential Services and Aerospace & Defense, while remaining careful and selective. Deal constructs have also evolved, with increased reliance on deal structure, including contingent consideration and, to a lesser extent, seller debt. Despite current economic challenges, the private equity market remains resilient, adapting to the evolving landscape while maintaining long-term growth potential. - What are your strategies for exiting an investment, and how do you time the market for maximum returns?
We focus on maximizing value for our clients by marketing their businesses in a confidential manner to the highest and best suitors from across the globe, accentuating favorable and proprietary attributes and highlighting growth prospects and synergies with each prospective counterparty. It is a tailored process and one that honors critical but less quantifiable elements, such as team culture, the well-being of employees and the legacy of the company post-sale. Timing the market for maximum returns involves staying closely attuned to market dynamics, buyer demand and macroeconomic conditions. We monitor sector-specific M&A activity, valuation multiples and competitive landscape shifts to identify the ideal window for a sale. By helping clients prepare their businesses in advance, we ensure readiness to exit when market conditions are most favorable, resulting in optimal returns for our clients. - When does the investment banker’s role end and third-party valuation begin?
The investment banker’s role is wide-ranging and includes deal strategy, preparing business profile presentations, buyer list development, confidentially marketing the business, facilitating due diligence, structuring transactions, and negotiations. Third-party valuation work pertains more to regulatory requirements, whether for financial reporting, tax compliance or regulatory scrutiny. Third-party valuation firms provide objective assessments, free from conflicts of interest, ensuring compliance with standards like ASC 820 (Fair Value Measurement for Funds/Portfolio Company Valuations) and ASC 805 (Purchase Price Allocation). Third-party valuations are critical for accurate portfolio assessments, carried interest calculations and meeting audit requirements. As regulatory environments become more stringent, particularly around fair value reporting, third-party valuations not only ensure transparency but also protect against potential liabilities and conflicts that could arise from in-house assessments. Relying on independent valuations gives stakeholders confidence in the objectivity and accuracy of financial reporting, which is becoming increasingly essential in today’s regulatory landscape. - What role does due diligence play in your M&A strategy, and how do you ensure it is thorough and effective?
Due diligence is a necessary part of any M&A transaction. Buyers need to independently investigate a target company and ensure to their satisfaction that they understand all relevant aspects of the business before closing can occur. In doing so, they often engage various advisory firms in the areas of accounting, tax, valuation, legal, operations, market research and environmental to prepare analyses and advice on an acquisition target. As sell-side advisors, we are adept at preparing management teams for these investigations and also in identifying, understanding and presenting the kinds of things diligence inquiry uncovers. In doing so, we know in advance what a buyer will eventually know. Advance notice is critical to a proper and thorough presentation of the business to buyers and allows for the promotion of favorable attributes and, at times, the mitigation of problem areas. This work in advance often requires that our client engage additional outside assistance, most commonly in the areas of accounting and tax.
The LA Times article also features perspectives from Michael Piric Managing Director, Financial Sponsors Group Lincoln International, Michael B. Saryan Founder Concord Legal Group, PC, and Chris Manderson Partner and Chair of the Corporate Department, Ervin, Cohen & Jessup LLP adding depth to the discussion and identify current trends in private equity and M&A landscape.
Read the full article here.
Stay tuned for more updates and expert analyses from Dan Shea and our team, as we continue to provide thought leadership in the investment banking and valuation space. To discuss insights from this piece or have a confidential conversation about your sell-side investment banking or valuation needs, contact us today.
Disclosures
The above testimonials may not be representative of the experience of other customers and is not a guarantee of future performance or success.
This news release is for informational purposes only and does not constitute an offer, invitation or recommendation to buy, sell, subscribe for or issue any securities. While the information provided herein is believed to be accurate and reliable, Objective Capital Partners and BA Securities, LLC make no representations or warranties, expressed or implied, as to the accuracy or completeness of such information. All information contained herein is preliminary, limited and subject to completion, correction or amendment. It should not be construed as investment, legal, or tax advice and may not be reproduced or distributed to any person. Securities and investment banking services are offered through BA Securities, LLC Member FINRA, SIPC. Principals of Objective Capital are Registered Representatives of BA Securities. Objective Capital Partners and BA Securities are separate and unaffiliated entities.
