Have company valuations changed during the crisis?
We still have a lot of work to do, but the transaction momentum is slowing down. Evaluation finding is the issue. The uncertainty present in the market makes pricing more difficult. There are plenty of reasons for this: exchange rates, supply chain problems, interest rate developments. The Covid policy in China is still a major issue as it has a massive impact on supply chains. Inflation triggers discussions about wage increases and also raises the prices of intermediate products, not to mention energy costs. Passing on the dynamic price development to customers also has its limits or usually takes place with a delay.
Yes, deals exist. Transactions are still going well, especially in HealthCare, Business Services, Infrastructure and Tec/Software. Energy-intensive and manufacturing industries are more cautious. The scenario is not pretty, purchase prices for inputs have increased and almost everyone is trying to pass on costs via time delays.
Financing is harder to come by. Banks (and debt financiers) are becoming even more selective about sectors. Conditions are deteriorating. In particular, the so-called senior banks are more reluctant to lend, and debt funds have naturally increased costs. As a result, there is less leverage when buying companies, which in turn affects the price.
Furthermore, private equity investors are currently subjecting their portfolios to so-called stress tests: that is, which company’s cash flow will be lower due to the crisis and when will the existing financing expire. More covenant breaches are occurring again. However, we also expect the market to regain considerable momentum as soon as the current risks can be better assessed and uncertainty disappears.
About the person
Stefan Jaecker is CEO of DC Advisory Germany and Poland and has more than 27 years of experience in investment banking. He focuses on advising private equity firms and family-owned companies in complex cross-border M&A situations. Prior to joining DC Advisory, Mr. Jaecker worked for Kleinwort/Dresdner and Kleinwort/Commerzbank for 17 years, where he was Co-Head Corporate Advisory and Head of M&A for the DACH region.