Attractive M&A Targets: what do buyers look for?

Transcription

1 Attractive M&A Targets: what do buyers look for? A research study by the M&A Research Centre at Cass Business School and Intralinks Philip Whitchelo VP, Strategy & Product Marketing, Intralinks

2 Notice This document contains information that is proprietary and is the property of Intralinks Inc. It may be used, distributed and reproduced only in its entirety (including this notice) or, if only part of the information contained herein is used, distributed or reproduced elsewhere, then this use, distribution or reproduction must be accompanied by this notice. While Intralinks and its representatives have used their best efforts in preparing this document, they make no representations or warranties with respect to the accuracy or completeness of the contents of this document and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. The advice and strategies contained herein may not be suitable for your situation. You should consult professional advisers where appropriate. Neither Intralinks nor its representatives shall be liable for any loss of profit or any other damages whatsoever, including but not limited to special, incidental, consequential, or other damages, from your use of the information contained herein. Nothing herein should be implied as a recommendation or advice to buy or sell any securities. 2

3 Intralinks global market leader in strategic transactions Secure content sharing Collaboration Information rights management 3

4 What is Intralinks Dealspace? 4

5

6

7 The probability of being an acquisition target is relatively low 1. Can financial measures such as growth, profitability, leverage, etc. provide insights into whether companies are likely to become targets? 2. What is the relative importance of these measures in predicting the probability of a company becoming a target? 3. What values of these measures make a company most likely to become a target? 7

8 What we did 1,590 firms and 912 targets from DACH Firms with $50m minimum annual revenues years of data 5 M&A cycles 33,952 public & private firms 14,047 acquisition targets Regression analysis of 6 financial measures 40 corporate & PE interviews Growth 3-year CAGR sales Profitability EBITDA/sales Leverage debt/ebitda Size sales Liquidity current assets/ current liabilities Valuation EV/EBITDA 8

9 Percentage points difference in average 3- year sales CAGR prior to takeover bid Target companies have higher growth than nontargets Target growth premium is highest during market downturns ( , ) and since 2010 (era of lower global economic growth and very low inflation) 6% 5% 4% 3% 2% ALL COMPANIES: percentage points difference, targets minus non-targets, in 3-year sales CAGR 2.4% 1.7% 3.3% 2.6% 4.8% Growth is highly valued by acquirers, especially during periods of economic uncertainty, market volatility and low inflation 1% 0% -1% -0.2% All Years Targets minus non-targets 9

10 Percentage points difference in average EBITDA/sales prior to takeover bid Private targets are more profitable than nontargets Since 2000, private targets are 1.2 percentage points more profitable than non-targets 2.5% 2.0% 1.5% 1.0% PRIVATE COMPANIES: percentage points difference, targets minus non-targets, in EBITDA/sales 0.7% 1.2% 1.1% 1.9% 0.9% 1.3% 0.5% 0.0% -0.5% -0.3% All Years Post Private targets minus non-targets 10

11 Percentage points difference in average EBITDA/sales prior to takeover bid whereas public targets are less profitable than non-targets Since 2000, public targets are 1.7 percentage points less profitable than nontargets Since 2008, acquirers have been particularly targeting underperforming public firms Underperforming public companies are more likely candidates for operational improvements and cost savings through merger synergies PUBLIC COMPANIES: percentage points difference, targets minus non-targets, in EBITDA/sales 0.5% 0.3% 0.0% -0.5% -1.0% -0.7% -1.5% -1.2% -2.0% -1.6% -1.7% -2.5% -3.0% -3.5% -2.9% -4.0% -3.5% All Years Post Public targets minus non-targets 11

12 Probability Public companies with very low profitability are the most likely to become targets Public companies in the bottom two deciles for profitability are 40% more likely to become targets in any given year than public companies overall In our regression analysis, low profitability is the second most statistically significant predictor of a public company becoming a target 8% 7% 6% 5% 4% 3% 2% 1% 0% PUBLIC COMPANIES: probability of being a target by EBITDA/sales percentile 7.0% 5.1% 4.5% 4.0% 3.9% 3.6% 3.8% 3.7% 3.9% 4.3% EBITDA/sales percentile Probability of being a public target by percentile Average probability = 4.3% 12

13 Median debt/ebitda prior to takeover bid Private targets are significantly more leveraged than non-targets Private targets have over three times more leverage than non-targets Private equity acquirers more attracted by high leverage than public acquirers PRIVATE COMPANIES: median debt/ebitda All Years Pre-2008 Post-2008 Private targets Private non-targets 13

14 Median debt/ebitda prior to takeover bid whereas public targets have lower leverage than non-targets Pre-2008: public targets are 6% less leveraged than nontargets PUBLIC COMPANIES: median debt/ebitda Post-2008: public targets are 11% less leveraged than nontargets Acquirers of public companies have become more riskaverse since All Years Pre-2008 Post-2008 Public targets Public non-targets 14

15 Probability For private companies, the probability of being a target increases with increasing leverage Private companies in the top two deciles for leverage are twice as likely to become targets as private companies overall In our regression analysis, high leverage is the most statistically significant predictor of a private company becoming a target 35% 30% 25% 20% 15% 10% 5% 0% PRIVATE COMPANIES: probability of being a target by debt/ebitda percentile 13.5% 1.4% 2.3% 4.2% 4.3% 7.4% Debt/EBITDA percentile 10.3% 14.4% Probability of being a private target by percentile Average probability = 13.7% 21.5% 31.8% 15

16 Median annual sales (US$m) Private targets are significantly larger than nontargets Private targets are 39% larger than non-targets 250 PRIVATE COMPANIES: median annual sales (US$m) In our regression analysis, large size is the second most statistically significant predictor of a private company becoming a target Acquirers of private companies see size and scale as being important 0 Private targets All Years Private non-targets 16

17 Median annual sales (US$m) whereas public targets are significantly smaller than non-targets Public targets are 43% smaller than nontargets Size acts as a deterrent to acquirers of public companies PUBLIC COMPANIES: median annual sales (US$m) All Years Public targets Public non-targets 17

18 Probability For public companies, size acts as an increasing deterrent to becoming a target Public companies in the bottom half of the percentile distribution for sales are 70% more likely to become targets than companies in the top half 7% 6% 5% 4% 3% 2% 1% 0% PUBLIC COMPANIES: probability of being a target by annual sales percentile 6.0% 5.8% 5.6% 5.1% 4.7% 4.4% 3.7% 3.5% 2.7% 1.7% In our regression analysis, small size is the most statistically significant predictor of a public company becoming a target Annual sales percentile Probability of being a public target by percentile Average probability = 4.3% 18

19 Percentage difference in median EV/EBITDA prior to takeover bid Public targets have lower valuations than nontargets The difference in valuation of public targets vs. non-targets is highest during significant market downturns ( , ) and since 2010 Acquirers target undervalued companies in general and also take advantage of companies whose valuations have fallen the most during market downturns 0% -2% -4% -6% -8% -10% -12% -14% -16% PUBLIC COMPANIES: percentage difference, targets vs. non-targets, in median EV/EBITDA -8.3% -6.7% -13.1% -2.6% -14.4% -12.5% All Years Public targets vs. non-targets 19

20 Probability Public companies with the lowest valuations are the most likely to become targets Public companies in the bottom three deciles for valuation are 30% more likely to become targets than public companies overall 8% 7% 6% 5% 4% 3% 2% 1% 0% PUBLIC COMPANIES: probability of being a target by EV/EBITDA percentile 6.7% 5.3% 4.8% 4.2% 4.0% 3.7% 3.9% 3.5% 3.5% 4.3% EV/EBITDA percentile Probability of being a public target by percentile Average probability = 4.3% 20

21 Conclusions 1: what makes an attractive target? 22

22 Conclusions 2: what makes an attractive target? 23

23 How to become (or avoid becoming) an acquisition target 24

24 Report Online interactive calculator using study methodology scores how attractive a company is as an acquisition target 25

25 Questions? Philip Whitchelo VP, Strategy & Product Marketing Tel: Mobile: