Earnouts on the up Indeed, the survey findings show GPs are using a variety of structuring tools to facilitate alignment on value between buyers and sellers. Earnouts are one of the most favored strategies for 48% of respondents, rising to 60% for those in the APAC region. Meanwhile, North American respondents more commonly turn to leveraging high/low deal competition (51%) and aligning financial metrics and assumptions with their buyer/ seller (45%). Dechert’s team also sees managers making use of seller contingent considerations, seller notes and deferred consideration to bring buyers and sellers together. For EMEA respondents, on the other hand, allowing flexibility in the deal’s structure is found to be one of the most effective strategies in helping to close the gap, as stated by 54% of this group. “In the APAC region for example, market valuation gaps, particularly in the mid-market, continue to persist. These gaps can prolong negotiations, but GPs are finding ways to work around the delta between buyers and sellers with clever structuring to bridge the gap,” Pedersen says. “Sellers in North America are not willing to take a haircut on valuation yet,” Bolsinger adds. “Buyers recognize that and will structure around the seller’s requirements to reach a price where sellers will be prepared to transact.” However, structuring deals creatively—in a more flexible or non-traditional manner—takes time and requires a shift in expectations when it comes to deal execution. In the current environment, sellers have to adapt auction process strategies and take a more curated approach to buyer selection. “The detailed structuring required to bridge valuation gaps suggests that fewer broad auction processes will get done. There will be more bilateral processes that are very targeted at hand-picked buyers and offer buyers more time. I think we could also see some pre-emptions and more club deals, but the crowded auctions of the past will be rare,” Bolsinger says.
Which strategies does your organization find most effective in helping to close valuations gaps? (Select top three)
EǸrnouts
48%
60%
51%
40%
DȃǸl structurȃ flȃxibility
46%
50%
54%
38%
AliȌninȌ finǸnciǸl mȃtrics Ǹnd Ǹssumptions with thȃ buyȃr/sȃllȃr
44%
40%
46%
45%
LȃvȃrǸȌinȌ hiȌh/low dȃǸl compȃtition
43%
35%
37%
51%
DȃlǸy closinȌ or stǸggȃrinȌ pǸymȃnts (i.ȃ., to Ǹllow mǸrkȃt conditions Ǹnd/or businȃss pȃrformǸncȃ to improvȃ)
39%
40%
32%
43%
LȃvȃrǸȌinȌ IP with unrȃǸlizȃd rȃvȃnuȃ potȃntiǸl
32%
20%
29%
40%
Rollovȃr ȃquity
28%
35%
34%
20%
In the APAC region market valuation gaps, particularly in the mid-market, continue to persist. Maria Tan Pedersen Dechert LLP
Sȃllȃr finǸncinȌ
20% 20%
17%
23%
TotǸl
AsiǸ-PǸcific
EMEA
North AmȃricǸ
12
Powered by FlippingBook