When the M&A market re-emerged last year after the initial impact of the pandemic, there was discussion about the greater emphasis buyers were putting on earn-out structures and the additional work going into COVID-19 adjustments, with the notable coining of the phrase EBITDAC (Earnings Before Interest, Tax, Depreciation, Amortisation and Coronavirus). However, I still view buyers as falling into two broad buckets, which is unchanged from pre-pandemic trends.
The strategic buyer
This type of buyer understands the value in the company, and the synergies it will bring. Their approach to valuation and structure is typically simpler, with fewer complex areas to negotiate, and therefore often a more straightforward process. This is of course dependent on many factors, including their understanding of the sector.
A financial buyer
The second type is a financial buyer, or one who follows a specific structure to pricing on a deal. They tend to take a more formulaic approach to valuation, sometimes due to fund cycles and demonstrating a return on investment for their investors. These buyers often (though not always) carry out a more in-depth financial analysis of the company, even prior to exclusivity and a due diligence process.
From what we’re seeing in the market today, though there will be exceptions and limitations depending on the specific deal, these two main categories of buyer still hold true.