After that, he said there could be another surge in activity. M&A deals got a bump from 71 in 2009 to 109 deals in 2010, he said, a 54% increase.
“The good news is that in today’s environment the acquirers are much more sophisticated than they were back in 2008, 2009, 2010,” DeVoe said. “They have deeper pockets; they are backed by private equity.” However, when enough sellers come into the marketplace during a surge, he said, the buyers will become pickier.
The fourth phase after this crisis is a return to normalcy. But currently, it’s harder to see what the valuation is in such a fluid environment. When assets go down, revenues go down and thus go profits and then valuations. In 2009 and 2010, valuations dropped after reaching record highs before that, he said, and in many cases those valuations were unjustified—the result of unsophisticated buyers. “We still had banks, which tend to overbid. … Back then the banks were throwing around money.” And some buyers shouldn’t have been in the marketplace. “Those players fell out of the mix. Those players went bankrupt. Those players were no longer around in 2009 and 2010. They just weren’t qualified to be in the marketplace.” Thus, the valuation crater.
He says today’s buyers are more sophisticated. That will affect the way firms are valued for sales in the future—because the new mega-buyers are more “scientific” and “strategic” in their approach in how they increase the profitability of a firm and its growth trajectory, DeVoe said. That means more recent valuations were likely more thoughtful.
But that obsession over valuation is probably covering up another thing that’s been glossed over: the changing structure of deals. Right now, deal structure is going to have to be more important than valuation, DeVoe said.
“Seventeen years ago when I started in this business, it would be like 30% to 35% down. Then it creeped up a couple of years ago to 50% down. DeVoe & Co. has negotiated deals with 80% down … 100% down.
“I think the down payments will go down,” he said.