Is the deals dam ready to burst?
Economic uncertainty and a slew of global problems led to an M&A slowdown at the end of last year, and into 2023. Could we see a flood of deals in Q2?
HBI hears promising whispers of “many deals in the pipeline” from multiple sources, and there is a growing expectation of a return to high volumes of high value transactions over the next six months or so. There has certainly been a hiatus, and deals – especially high value deals – are taking longer to go through. But a flurry – especially in hot sectors like dentistry, diagnostics, radiology and cancer care – is on the way.
This will come as a relief to many after a period which saw a series of high-profile deals – such as the KKR bid for Australia-based multinational hospital group Ramsay – fall through. By coincidence, as Deals + Insights members can read elsewhere, south east Asian subsidiary Ramsay Sime Darby’s $1.3bn sale is now back on.
So, job done? Not quite – there appear to have been some casualties, and some delays. The sale of German radiology group RAD-X may have stalled. There are obviously still some concerns over the economic outlook in general. And deal watchers continue to wait for news on the likes of still-for sale UK nursing home group Four Seasons, and the ongoing processes for the likes of European Dental Group.
And yes, energy and labour prices are still going up, with the former a huge concern for large inpatient sectors like hospitals and the latter a headache for just about everyone who values a non-striking workforce. Where valuations should sit remains a hot topic, with a position largely dictated by whether one is the buyer or seller. As a German nursing home source puts it “sellers want 2021 prices and buyers want 2023 prices”. Financing is also both more expensive and harder to come by, making large-scale deals which require multiple sources of debt financing very difficult.
Investors and lenders are still being cautious. And yet, we sense a palpable sense of optimism, and hear increasingly positive chatter. If traditional lenders are too cautious, we can go elsewhere, is a message we hear in some PE quarters.
Perhaps the flood of deals is still a few months off. But we’re increasingly of the view that at the very least, by the end of Q2 we will all agree the drought is over.
We would welcome your thoughts on this story. Email your views to Joe Quiruga or call 0207 183 3779.
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