“The unicorn companies that everyone has been waiting to go public will need a reasonably healthy market to have strong offerings.”
Co-CEO, Head of Mergers and Acquisitions, Managing Director
2019 M&A and IPO Outlook
Geoff Baldwin shares his perspectives with Mergermarket
Below are some of Geoff Baldwin’s remarks from his January 2019 interview with Mergermarket. To talk about the latest M&A market trends, reach out to reach out to Geoff directly.
Taking stock: 2019 Outlook for M&A and IPOs
On M&A market trends and the main drivers expected to influence M&A dealmaking in the year ahead
Typically, the economy cycles every five to six years and you have a recession and everything gets reset. That basically ends up reloading the M&A and IPO markets.
The issue we have right now is that we’ve had a 10-year economic run where there hasn’t been a reset. As a result, assets have become really expensive – not just the high-flying, fast-growing technology companies but almost all companies. I’ve been doing this for 33 years and I’ve lived through lots of upturns and downturns, and valuations at the moment seem to be essentially double what they used to be.
Even a basic industrial company growing 5% a year with 10% operating margins – historically, a company like that might be worth 8x, and those companies are all trading at 16x now.
If valuations remain expensive, M&A activity will start to be limited to must-have deals. That means deals in industry sectors that people view as absolutely critical to their roadmap going forward. Usually, a lot of those are technology deals, such as artificial intelligence companies. But some of the more vanilla deals, for companies that don’t have particularly impressive growth or profitability, are hitting the wall right now. When acquirers do the math, they just look too expensive for what they’re getting.
All that being said, the M&A business has been very good this year. And just looking at my own firm, which focuses on M&A and capital markets advisory in the technology sector and other growth sectors of the global economy, we’ve got a substantial backlog going into next year. So ultimately, I think it will be another good year. The US economy is performing better than at almost any time in my professional career, and I think despite the issues that do exist, the underlying fundamentals are very robust, and to me that means we’ll see a lot of M&A in 2019.
On the IPO market outlook
The IPO market was strong last year, but the issue is that when valuations become uncertain and you have liquidity drying up in the markets – which is the situation we have right now – people pull in their horns on IPOs. I suspect that right now, until we see some greater stability in the market, IPOs will be a bit more challenging.
The other issue as it relates to my sector of focus, technology, is that there are a lot of unicorn companies that are slated to go public in 2019 if the markets are good. Those companies have raised a lot of capital at very high valuations, and as a result there is kind of a clearing price at which those deals work. So I think the unicorn companies that everyone has been waiting to go public will need a reasonably healthy market to have strong offerings.
Access the full interview and report here.