COVID-19 has brought many businesses to the buyout or acquisitions market within the past year due to less consumer spending on small and medium size businesses. Entire franchises have gone under in the past year all thanks to ‘stay at home orders’ that were thought to be beneficial (for people not most businesses) at the time. Along with many businesses being for sale, there are many sharks that are looking to acquire established businesses to boost synergy within their respective companies. All these financial chiefs are facing the same problem, high asking prices and stronger competition from other deal makers alike.
Executives this year alone have set in place 1,270 deals involving United States based companies. This may seem like a lot, but this number is down from 1,665 during the same period in 2020. There is one twist though, the acquisitionists this year have paid three times as much to buy 395 less businesses (Dealogic). The M&A buyers dished out an astounding $321.16 billion targeting U.S. businesses.
The reason that these companies are acquiring other businesses is to position themselves to accelerate their growth and aid profits in the post-pandemic world. High stock market valuations, low borrowing costs and high competition in acquisition buying markets are all drivers of the drastic increase in prices, even from last year. “It may be that we are in an environment where certain sellers have unrealistic expectations,” said CFO Vasant Prabhu.
According to Bain & Co, a management consulting firm, multiples for global deals rose 14 times in 2020 up from 13 times in 2019. Also, valuations for the technology, telecommunications, digital media, and pharmaceuticals sectors increased, while retail and energy sectors suffered.
Eaton Corp., a power management company based in Dublin, spent $1.65 billion on just one acquisition to buy a provider of power and connectivity solutions. Days later, it is said that they struck a deal to acquire a manufacturer of air-to-air refueling systems, for $2.83 billion. Eaton is led by the company’s CFO, Richard Fearon, who has been serving since 2002 and has acquired over 70 businesses.
Big businesses like Eaton Corp. are a driving force that are pushing large amounts of money around the business sector. Corporations are getting bigger, small businesses are taking on loans and going out of business, and the government is aiding inflation with nearly $2 trillion stimulus bills. As we are approaching the end of the Coronavirus pandemic, corporate businesses will be prepared to grow and do businesses better than before.