Deals of the Week: Great valuation expectations create their own reality

Andrew Apfelberg was quoted in Bob O’Brien’s M&A Deal Roundup that ran in The Deal on September 12, 2016 (subscription required). The article, looking at the top 10 deals from September 4-9^th, compared a slow summer to what appeared to be a rather busy first week in September.

Looking at valuations that have grown—and remain—extremely high, Apfelberg commented that many asset owners have not yet adjusted their expectations in a post-peak environment.

"We are probably a bit past the peak," he said. "Multiples have softened, but not by a lot." Asset holders, he added, have stayed in their "peak" mentality. "Sellers use valuations that are still relatively high."

When asked how price levels would affect the M&A market, Apfelberg said he expected activity to remain robust over the next several quarters noting that what has changes are the fundamentals.

"Now it's about money plus something," Apfelberg said. "Sellers really want a roadmap to the ultimate liquidity event."

The question of valuation comes down to the attractiveness of the set. "If you're looking at a high-quality asset, buyers are maybe a little more willing to stretch on multiples," Apfelberg said. "I see that investors are more willing to stretch for a good asset—it's an easier explanation to my limited partners, and to think of the impact this will have on my fund."

There's always a disconnect between the mindset of the asset holders and the prospective buyers, he added. Sellers live in the "now." Prospective buyers live in the future and have to think about what changes—in the interest rate backdrop, availability of credit, or general social and economic environment—may be ahead.