EHS Support’s 2017 M&A Outlook

By: Kaitlyn Templin

Following is an overview on 2016 M&A activity and what dealmakers are expecting for 2017. We have also included information below on what we are observing here at EHS Support and our suggestions for being better prepared from an environmental perspective.

In Mergers & Acquisitions’ recent webinar, “What to expect in 2017,” panelists indicated that dealmakers feel “cautiously optimistic” about 2017 and expect it to look a lot like 2016. As for 2016, while panelists agreed that the lending market is still very active and private equity firms continue to have unprecedented amounts of dry powder, they all acknowledged the slowdown in closed transactions this year, as well as the decrease in high quality deal flow. Similarly, Pitchbook has indicted the M&A cycle is winding down, reporting that the number of completed transactions fell to just over 3,000 in 3Q 2016, compared to 5,472 in 1Q 2016 and 5,965 in 1Q 2015, for example.

Panelists attributed the slowdown in the number of closed transactions to “a supply and demand issue,” involving a scarcity of high quality targets and a rise in extremely competitive processes that involve many private equity, family office and corporate suiters – all of whom are flush with cash. Correspondingly, these dealmakers emphasized the increase in valuation metrics over the course of 2016, in addition to the rise in corporate acquirers with whom they often find themselves competing. Likewise, according to Pitchbook, median EV-to-EBITDA figures in 3Q 2016 rose to 10.0x, up from 9.1x in 2Q — the highest figure in the last five years. Pitchbook reported that part of the reason for the spike in valuations could be linked to the higher amount of corporate acquirers chasing larger deals. Indeed, according to Pitchbook, “in 3Q 2016, 17.5% of completed transactions had an enterprise value in excess of $250 million, compared to 15.3% in 2Q and between 13% and 14% during the entirety of 2015.”

When asked whether 2017 will be as competitive, all of the panelists specified that they have no reason to believe it will be any less competitive. Overall, they feel the key market drivers will continue to consist of a high level of strategic acquirer activity as well as a continued increase in activity from family offices.

So how can dealmakers best position themselves for 2017?

Panelists named several key ways to get a leg up on the competition, including “acting with conviction” and clearly demonstrating credibility and knowledge in the target’s space, which may mean spending on consultants and advisors earlier than usual. In addition, those acquirers who are able to clearly articulate how they have helped similar, relevant businesses grow, will likely come out ahead in competitive auction processes. They also advised those entering the M&A world to develop a focus or specialization to differentiate themselves.

What trends are we seeing in Environmental Due Diligence and how can Dealmakers Prepare themselves for the New Year?

As EHS Support’s Maureen Hodson reported in our latest environmental compliance newsletter, President-elect Donald Trump’s administration and Republican-controlled congress is sure to have an impact on environmental policy in the United States, particularly with regards to energy production and climate change, but possibly also in other areas of environmental regulation and enforcement.

Regardless of how the new administration will affect environmental policy, dealmakers across all industries can take several steps to ensure they are protecting themselves from environmental liability, while also unlocking more value in their deals.

  1. Take action early.  As EHS Support recently reported, we are witnessing an increase in buyer due diligence prior to the period of exclusivity. Many of our clients are reaching out to us before they even submit a Letter of Intent, to review materials and perform a high level environmental overview of the target company, so they can be prepared in management meetings.
  1. Prepare for Divestiture. Sellers are becoming better prepared from an environmental perspective. We have recently been performing more environmental evaluations for business owners preparing for divestiture of their business. Likewise, in situations where we are representing the buyer, we have witnessed sellers coming prepared with environmental reports ahead of the due diligence period. In these situations, it is important to review these for completeness and accuracy.
  1. Capitalize on all Available Tools. We continue to observe an increased reliance on representations and warranties, as well as environmental insurance, to increase confidence around what buyers may have been missed during shortened due diligence periods.
 

Please do not hesitate to reach out to us to speak more about how to prepare for 2017 from an environmental perspective. For information on how EHS Support can help you manage environmental due diligence, please contact Bruce Martin, Kaity Templin, or Raghava Dasika.

Kaity TemplinABOUT THE AUTHOR Kaity Templin has several years of experience in the NYC financial industry. Prior to joining EHS Support, Kaity began her career as an investment banking analyst at a leading sell-side merger and acquisition advisory firm in NYC. Her experience includes creating financial models and company valuations, preparing selling materials, developing buyer lists, approaching the market with clients, conducting management meetings, managing virtual data rooms, and assisting in buyer due diligence processes. In addition, she was active in developing and managing lead relationships…. Read More
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