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Discipline Crucial in 2020

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Published: December 4th, 2019
M&A valuations remain frothy and Ebitda adjustments are growing, panelists cautioned at The 2019 Deal Economy Conference.

M&A valuations remain frothy and, though some sellers are showing flexibility, discipline will as a result be key for dealmakers in 2020, panelists at The 2019 Deal Economy Conference told the audience.

Long Point Capital Inc.’s head of origination, Meaghan O’Grady, told the gathering at New York City’s Essex House that she avoids “getting caught up in the buzz” when entering negotiations with targets. To that end, she’s noticed sellers asking for off-kilter price adjustments—for instance, accounting for the Ebitdas of add-ons that haven’t yet closed.

“As a buyer, you’re scratching your head saying, ‘Is anyone saying yes to these things?’” she said.

The panel, titled “Sense of the Markets: Navigating the Current Environment, also featured Jelena Guzenko, Siemens AG’s M&A director; Kimberly Petillo-Décossard, a Cahill Gordon & Reindel LLP partner; and Patrick Turner, a Veronis Suhler Stevenson LLC managing director.

Despite high valuations, the panelists insisted that promising sectors and company types abound. Nearly all agreed that healthcare IT is an attractive space, though Turner cautioned that prices in the segment are “through the roof.”

Cahill’s Petillo-Décossard noted that she’s seen interest in mobility technology and AI, while Guzenko said that Siemens is pursuing Internet of Things-focused deals.

Long Point’s O’Grady is currently interested in pursuing Canadian small-cap companies, describing it as a “great opportunity to find good value,” while Turner said that he continues to see enormous opportunity in the ever-consolidating physician services factor.

Panelists also sounded off on whether the upcoming 2020 U.S. presidential election will affect M&A. Though Siemens doesn’t anticipate being directly affected by American political outcomes, Guzenko said the current administration’s foreign policy regarding China has affected “some deals.”

Petillo-Décossard expressed concern about dealmaking in China, noting that M&A involving Chinese companies is down about 90%.

O’Grady, whose New York and Royal Oak, Mich.-based firm focuses on America’s “heartland” in her words, has noticed dealmakers accelerating the timing of deals because of uncertainty about the election.

“We’re seeing sellers and buyers alike wanting to get deals done yesterday,” said O’Grady.

VSS’ Turner cautioned that geopolitical risks overall could negatively affect the deal landscape in 2020, as he views the U.S. economy as “quite fragile” and the recovery “long in the tooth.”

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