M&A advisors across the globe have seen an overnight shift in their day job; from a pleasant mix of execution and origination to maintain a confident 12-18 month forward deal book –to an unsettling period of waiting to see what deals they would be fortunate enough to re-do, re-negotiate or re-structure (as opposed to lose permanently).
From a global perspective, whilst M&A activity for 1H 2020 was around half the level of what we’ve seen over the past several years, there has been a catch up in Q3 –with activity in line with what’s typically been observed. Pricing has broadly held up for 1H 2020, with the average EV / EBITDA multiple of 10.9x broadly flat on 2019 at 11.1x. This will be partially influenced by Covid not hitting until early-mid March and the average EBITDA multiple for Q2 2020 is a bit softer at 10.4x1.
Looking at KPMG’s own statistics, our current position is pleasing and certainly exceeds how we thought the year would play out when forecasting during the first lockdown in March.
In fact, 80% of our department’s 25 transactions (across M&A and due diligence) have now completed or are close to completion. However, close to half (40%) have completed following the deal structure taking a change of course to shift more risk to the vendor (through earn-outs, reduced investment stakes and other mechanisms) in order for the purchaser and vendor to reach an equilibrium.
Despite GDP being down 12.2% for Q2 –the largest decline on record, and Treasury forecasting it will be through to September 2022 until real GDP recovers to pre-Covid levels, our expectations for New Zealand mid-market M&A volumes for 2021 and into 2022 are a little more upbeat.
Our view is a softer start for the year (Q1, and possibly Q2) will be followed by robust volumes and a return to pre-Covid levels for mid-market M&A (below $250m) by the middle of 2021.