First half of 2021 in review: an interview with the partners
Q: A simple question about the first half of 2021: What‘s going on?
Chuck Weikel: In the last six months we have gone from a full-stop pandemic environment to not-quite-normal conditions, we now see extraordinarily active M&A conditions in MedTech. A number of factors are at work and perhaps the number one reason for this seems to be psychological: the desire to return to normalcy.
Göran Brorsson: Yet it is a “normal” that does not reflect anything from history. I cannot prove this with numbers, but the number of potential opportunities in the market appear to be at an all-time high. Everything suddenly is for sale.
Larry Barr: Everything seems to be in the market - but “everything” is a limited number of businesses. But after ten or twenty years of industry consolidation the number of independent MedTech companies available to be purchased is limited and good for remaining sellers. So the result is weird, both a seller’s and buyer’s market.
Chuck Weikel: Right. And the companies coming to market are extraordinary - long time family owned businesses, a number of PE owned businesses and even public companies. It seems a lot of people have come to the same conclusion post-pandemic: now is the time.
Larry Barr: The 1st Half M&A closed transactions numbers do not represent this, but we are confident that the 2nd Half of 2021 will see many more closings. We know one investor group trying to close three deals at once.
Q: Is there capital available for these transactions?
Larry Barr: Yes, absolutely. Private equity is investing and raising more capital while lenders are lending.
Q: So multiples are … ?
Göran Brorsson: Believe it or not, pretty stable. These forces seem to be off setting each other and are generally maintaining pre-pandemic valuations. Which is not to say they are low, they are easily in double digits.
Chuck Weikel: Agreed. Out side of MedTech valuations can often be lower, especially in industries impacted by the pandemic, like aerospace. We saw a clean MedTech / Aerospace deal last week valued below 7x.
Larry Barr: It also kind of goes without saying that the way transactions are getting done is different. More Zoom less in person, etc…
Q: And in Europe?
Göran Brorsson: Yes, the same, albeit quieter and - maybe - less exciting. Families are in discussions and PEs are active.
Q: So what is next?
Larry Barr: My guess is things will begin to slow down as current deals close. The bigger companies will transact while there will still remain a base of smaller (around $2 million EBITDA) up-and-coming businesses. Yet some of these too will transact as they see opportunities.
Chuck Weikel: It is self-serving to say this, but sellers need an advisor. Just three weeks ago we saw a seller leave $5 mm in marginal value (about 10% of the purchase price) on the table because they would not wait 12 hours for a European bid to come in. This simply should never happen, even in frothy market conditions.
Göran Brorsson: Yes, and it helps buyers to have a rational seller on the other side of the table, although it may not be $5 mm of help!
Q: Thanks! And we look forward to doing this again at the end of the year.
At Middle Branch Partners we remain committed to supporting buyers, sellers and capital raises in the contract manufacturing and MedTech markets globally. Contact us today with your strategic needs.
