Q1 2018 Business Products and Services Industry Spotlight
INSIGHT ARTICLE |
Seller expectations have seldom been higher than they are today. Asking prices are somewhat inflated, with high synergistic expectations already baked in. Those optimistic assumptions are creating issues when synergies don’t pan out as hoped. Because of the disconnect between buyer and seller expectations, the market is seeing more broken deals in recent quarters. High valuations create significant uncertainty when even small earnings adjustments are discovered prior to closing. Private equity (PE) investors are cautious of overpaying in this market, which saw a decade-high $331 billion invested last year. Valuations aren’t expected to come down until investor interest subsides dramatically, which doesn’t appear to be the case this year.
Some RSM clients are starting to plan for a “soft slowdown” in the economy, even if a downturn doesn’t fall to recessionary levels. Recent investments may be affected by any macroeconomic hiccups over the next three to five years. Recent changes to the federal tax code shouldn’t significantly affect PE, though the changes are worth understanding. From a structuring perspective, RSM is helping clients understand the changes from a post-close, cash flow perspective, which is the most relevant to PE firms.
Datagraphic available for download.
Additional dealmaking industry insights
Significant opportunities for innovation and investment continued to define the health care industry through Q1 2018.
Swifter product life cycles, still-high equity markets and relatively cheap debt continue to encourage consolidation among strategics.
A large amount of dry powder combined with relatively few opportunities has created an imbalance in supply and demand.