In my previous column, I explored the reasons behind the growth of mergers and acquisitions (M&A) in the automation market from a buyer’s perspective. In this column, I’ll look at M&A from an automation company owner’s (or seller’s) position.
But first, I should note that, despite ongoing economic uncertainties around the world, through the first quarter of 2023 all indications point to this year being dynamic for automation market mergers and acquisitions. Although macroeconomic conditions, such as higher interest rates and challenges in the debt financing markets, are putting additional pressure on conditions, automation continues to be a resilient and attractive segment, and the Bundy Group team sees no decrease in strategic buyer and financial sponsor interest.
As automation business owners analyze the activity in the M&A market and their future planning, there are several fundamentals that are critical for them to understand to help inform their decisions. Among these factors are the amount of available capital, business valuations and the owner’s personal goals.
Investable capital
Despite all the economic uncertainties making headlines recently, there remains an enormous pool of capital in the market to invest in the private markets. Specifically, there is approximately $3.3 trillion in capital, committed by financial sponsors for private company investments, that has not yet been invested (source: Hilary Wiek’s November 30, 2022 “Global Private Market Fundraising Report” pitchbook.)
The professionals managing this pool of capital are eager for opportunities to put these funds to work instead of giving the money back to their investors or limited partners. Plus, debt capital providers with interest in the automation market, such as private lenders and commercial banks, are numerous.
Recent credit market challenges, including the recent Silicon Valley Bank crisis, are pushing debt capital providers to be more selective in the transactions they pursue. One likely result is that lenders will require higher equity contributions by strategic and financial sponsor buyers for transactions, including in the automation sector.
Robust valuations make for a seller’s market
A potential recessionary environment, coupled with higher costs of capital, could negatively impact automation market valuations, which plays to the favor of buyers. That being said, buyers will pay premium valuation multiples for an automation business when forced to do so under the threat of other buyer competition.
In a recent competitive sale process managed by the Bundy Group for an automation company, the winning buyer paid a 50% premium relative to an offer the seller received prior to hiring our firm.
The heightened demand for automation companies from buyers currently outweighs the supply of acquisition opportunities, which creates a fertile valuation environment for business owners.
Personal goals
A business is an owner’s largest asset, and it is common for shareholders to evaluate how best to realize a liquidity event for retirement or estate planning purposes. This could include a sale to an internal management team or selling a majority position—or all of the company—to an outside strategic or financial sponsor buyer.
While wealth creation is a major priority for most owners, it is equally important to consider the legacy of the business and the future well-being of the employees. When managing a sale process the right way and including a quality pool of buyers, you can accomplish both objectives.
For example, Bundy Group recently represented Bob Zeigenfuse, owner of Avanceon, an automation system integrator and technology firm, in a sale to Vinci Energies, a strategic buyer. Speaking about the sale, Zeigenfuse said, “Avanceon’s associates were my first and foremost consideration in a transaction, but it was also critical that I achieved a highly attractive valuation and deal structure. I was able to accomplish both in this transaction through preparation, leveraging my advisors, understanding the best buyer options for my organization and defining my personal financial targets.”
Bundy Group is a boutique investment bank that specializes in representing controls and automation, Internet of Things, and cybersecurity companies in business sales, capital raises and acquisitions. You can learn more at www.bundygroup.com or by contacting Clint Bundy at [email protected]. Bundy Group Securities, LLC, is a registered broker-dealer and member of FINRA and SIPC. This content is for informational purposes only and is not intended as investment advice or a recommendation to buy or sell any security.
