Mergers and acquisitions should remain strong through 2021 — driven by several factors affecting deal flow — although finding a good deal may come with a high price for buyers.
Participants in a recent MiBiz M&A roundtable discussion say they expect valuations to stay high for the foreseeable future — perhaps unreasonably so at times — as buyers compete for good deals in a robust market.
A massive capital overhang, low interest rates, and greater competition among buyers in the market drove up high valuations in 2020. Buyers ranged from strategic corporate acquirers seeking to drive growth or add to platform companies, to private equity investors and family offices. Lower deal flow after the U.S. economy fell into recession in the COVID-19 pandemic also contributed to increasing valuations that are expected to remain elevated even as activity picks up.
“You throw those all in the mix and you don’t have an aggressive amount of deal flow, you’re going to have high valuations and you’re going to have high valuations for a while,” said Rajesh Kothari, managing director of Southfield-based investment banking firm Cascade Partners LLC.