by Beth Ewen
“This weekend I was reading the latest PitchBook report, and it said another $2 trillion year for M&A, fewer transactions but sky high valuations continue,” said Sima Griffith, principal at Aethlon Capital, at the Faegre Baker Daniels M&A Conference in Minneapolis today.
“I’ll tell you a story that illustrates the frothiness of this market,” she continued, citing a recent deal in which the investment banking firm received nine letters of intent, “and I would argue that in a much weaker market we might have received three or four.”
Glenn Gurtcheff of Harris Williams & Co. agreed that ‘A’ properties are “flying off the shelf. “The interesting thing now, when you start looking at ‘B’ and ‘C’ properties, there’s less stomach for buying inferior companies. I’ve said for a while, there’s only one way for this market to move and it ain’t up.”
Griffith said the No. 1 industry for mergers and acquisitions is TMT, also known as technology, media and telecom. “It saw 29 percent of all M&A activity, followed by consumer.”
She cited a Deloitte survey saying “technology is the No. 1 driver of deals. We’re seeing a lot in artificial intelligence….a good example is McDonald’s paid $300 million for an Israeli artificial intelligence company, which will allow them to customize their menu based on customer preferences.”
Matthew Sznewajs of Piper Jaffray & Co. sees in recent months the rise of strategic buyers, or those who purchase businesses because they fit into or add onto the business model. “For a long time we saw financial buyers vastly outbidding strategic buyers. With the low organic growth rates that we’ve seen…and the amount of cash they have, we see strategic buyers being much more aggressive” on both price offered and speed of transaction. “It’s really happened over the last 12 to 18 years, strategic buyers willing to pay up.”
But Gurtcheff advised all buyers not to take anything for granted when trying to win a deal. “Strategic buyers tend to believe they will have an advantage in every single transaction. I think it’s really easy to dis-advantage yourself,” he said.
“I tell them you can’t win this deal at dinner but you can lose it. Leave the phone in your pocket, focus on the people,” he said. “Not being an idiot seems sort of obvious, but you’d be surprised.”