Have company valuations changed during the crisis?

We still have a lot of work to do, but the tran­sac­tion momen­tum is slowing down. Evalua­tion finding is the issue. The uncer­tainty present in the market makes pricing more diffi­cult. There are plenty of reasons for this: exch­ange rates, supply chain problems, inte­rest rate deve­lo­p­ments. The Covid policy in China is still a major issue as it has a massive impact on supply chains. Infla­tion trig­gers discus­sions about wage increa­ses and also raises the prices of inter­me­diate products, not to mention energy costs. Passing on the dyna­mic price deve­lo­p­ment to custo­mers also has its limits or usually takes place with a delay.

Yes, deals exist. Tran­sac­tions are still going well, espe­ci­ally in Health­Care, Busi­ness Services, Infra­struc­ture and Tec/Software. Energy-inten­sive and manu­fac­tu­ring indus­tries are more cautious. The scena­rio is not pretty, purchase prices for inputs have increased and almost ever­yone is trying to pass on costs via time delays.

Finan­cing is harder to come by. Banks (and debt finan­ciers) are beco­ming even more selec­tive about sectors. Condi­ti­ons are dete­rio­ra­ting. In parti­cu­lar, the so-called senior banks are more reluc­tant to lend, and debt funds have natu­rally increased costs. As a result, there is less leverage when buying compa­nies, which in turn affects the price.

Further­more, private equity inves­tors are curr­ently subjec­ting their port­fo­lios to so-called stress tests: that is, which company’s cash flow will be lower due to the crisis and when will the exis­ting finan­cing expire. More coven­ant brea­ches are occur­ring again. Howe­ver, we also expect the market to regain considera­ble momen­tum as soon as the current risks can be better asses­sed and uncer­tainty disappears.

About the person

Stefan Jaecker is CEO of DC Advi­sory Germany and Poland and has more than 27 years of expe­ri­ence in invest­ment banking. He focu­ses on advi­sing private equity firms and family-owned compa­nies in complex cross-border M&A situa­tions. Prior to joining DC Advi­sory, Mr. Jaecker worked for Kleinwort/Dresdner and Kleinwort/Commerzbank for 17 years, where he was Co-Head Corpo­rate Advi­sory and Head of M&A for the DACH region.