Re:Up - the change in valuations
We've seen a healthy stream of deals in the past couple months. Along with the spike in transaction volumes, we've also tracked a strong increase in valuation multiples, particularly since the floor in February of this year.
One of the primary reasons we've seen this influx of deals is because the big buyers were hoarding cash for much of the downturn, and then in the past few months, released their Corp Dev Hogs to go out and pick-up companies at depressed rates. That isn't to say they are paying pennies on the dollar, but there have been some good deals during the upswing.
What's interesting to me are the recent "Re-Valuations" of deals: Announced closing price of $XXX million dollars... and then a further negotiated deal of $XXX + X million dollars. Two perfect examples of this are:
1. Cisco's acquisition of Tandberg, which finally closed at $400m over the announced price of $3b, after the shareholders demanded a re-negotiation.
2. The current class action lawsuit from shareholders of 3com to UP the agreement of $2.7b from HP.
I see a mixed bag of implications to the greater market, both positive and negative:
Positive - higher multiples at the top of the market could filter down into the mid market and the smaller deals, increasing valuation multiples for smaller, private deals.
Negative - greedy seller expectations could cause harm in a recovering market. We aren't out of the mud yet, and if the buyers start walking away from the deals, this could affect the healthy deal volumes we've been seeing as of late.
Posted by DouganMilne, Research Analyst on 01 December 2009
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