Are We in an M&A Bubble?

If the past year has showed us anything, it is that the mergers and acquisitions landscape in the Healthcare industry is booming. After a short lull during the initial portion of the pandemic, both strategics and private equity firms alike began diving head-first into the piping hot market, leading to record numbers of sales and acquisitions in 2020 that have continued to be outpaced every quarter of 2021 thus far. This impressive boom, while currently strong, does beg the question: are we in an M&A bubble? And if we are, how will this affect transaction multiples moving into 2022 and beyond? 

During one of our recent webinars, MedTech M&A: A Financial Buyer’s Perspective hosted by MassMedic, MedWorld Advisors Managing Director – Middle Markets, Daniel Sheppard, asked a panel of private equity industry professionals this very question. Steve Sandbo, Principal at Vance Street, explained that whether it’s cheap capital, an influx of a lot of buyers into this particular space, or just macro trends driving a lot of these markets, he does not necessarily see significant changes coming over the next one to three years. He was not alone in this sentiment, other panelists, Eric Tansky, General Partner at Accelmed, and Mike Magliochetti, PhD, Operating Partner at Riverside Partners, also agreed and felt that because of the position of the healthcare industry, we are protected. We would add that part of the trend today, is that as healthcare M&A has become a hot topic, new investors who have never invested in this segment are not only coming to the table but are betting big. So, the good news is that the consensus is no, we are not in an M&A bubble.

In terms of the valuation of a business and how their private equity firms are evaluating their strategy, the panelists each provided their own insight. Steve Sandbo (Vance Street) notes while that there has certainly been an increase in multiples over the last few years, and that those are not likely to significantly change over the next few years, the general opinion is that this increase is here to stay. Mike Magliochetti (Riverside Partners) stated another important note that valuation is created by underlying drivers, such as access to capital and the cost of capital. As long as the cost of money remains what it is, multiples will continue to stay high. 

Eric Tansky (Accelmed) gave a piece of advice that everyone in this industry should hold to be true: “each deal is going to be different, and we have to make sure for each deal…our entry multiple makes sense relative to the exit multiple”. So, while the M&A bubble doesn’t seem to be true, that does not change the fact that regardless of the segment in which your business lies, there should be an understanding of where you are beginning and where you intend on ending. This drives the potential valuation of your business. 

If you’d like to watch the portion of this webinar specific to the content discussed above, click here.

We look forward to continued conversations in the future on our blog.