Is the price right?

The outlook for M&A looked pretty rosy at the beginning of the year. Dealmakers and their advisers started off in optimistic mode: at $1,051bn, global M&A deal value for Q1 was the highest quarterly total since the second quarter of 2022, according to PitchBook. And while some trepidation in the lead-up to president Trump’s tariff announcements slowed the market a little, few were prepared for what transpired on 2 April’s ‘Liberation Day’ and the twists and turns that have since followed.

Faced with such heightened uncertainty, buyers and sellers have largely been taking the only rational course of action open to them: pausing and assessing the situation. It is no wonder that M&A timelines have now increased by an average of 23% compared with last year, according to Ansarada.

Chris Price, partner at Mobeus, outlines some of the new complexities of getting deals across the line. “In one of the transactions we are working on, the tariffs have caused the process to at least double in length,” he says. “We are having to consider a whole range of unexpected issues, such as manufacturing location and US pricing strategy.”

Not only that, but the team has had to rework the financial models six times, based on different tariff levels. “We have no confidence in what the underlying tariff environment will be in the next 12 months,” he says. “So an area that didn’t exist four months ago is now a material and meaningful risk for our investment and the company’s cash flow and profit potential. That must have an impact on the pricing and funding structure we need to put in place.”

Before and after

By the end of March, there had been some signs of headline valuations stabilising. Median US and European M&A EV/EBITDA multiples sat at 9.6x for Q1 2025, not so far off the 9.7x for full year 2024, PitchBook figures show (see chart, below). So, what comes next? “It’s too early to tell whether the increased uncertainty since April has had a material impact on the multiples being commanded,” says David Stears, head of valuations at Buzzacott. That’s a sentiment many other advisers echo.

However, there is a sense that resilient businesses opting to brave the market will still trade with relatively strong pricing. “High-quality businesses in attractive sectors, with recurring revenues, high barriers to entry and attractive growth potential, and that present synergies for buyers, are still generating competitive tension in processes and transacting at large multiples,” says Doug Lawson, MarktoMarket CEO. “The bifurcation between companies with these characteristics and the rest has been a feature of the market for some time and this seems to be continuing. Businesses lacking these characteristics are either not transacting or they are not fetching exciting multiples.”

Sharon Davies, managing director in the valuation advisory services practice at Kroll, agrees. “Buyers may consider paying a predictability premium for companies with stable, predictable earnings and recurring revenues, particularly in a volatile market,” she says.

Beyond the headlines

Yet headline figures only tell us so much. Many sellers are not receiving the full purchase price on deal completion because there is so much structuring going on behind the scenes to bridge the persistent price expectations gaps and help buyers de-risk their investment. 

For Price, this structuring is essential in today’s market. “A premium multiple implies growth and there is more risk-sharing in deals because you have to factor in question marks about whether that growth can be maintained in a tougher trading environment,” he says. “It’s all about protecting the buyer if growth doesn’t come through, so it could be asking the vendor to leave some money behind in place of leverage to replace a bank or it could be a contingent deferred consideration.”

A hefty dose of deal structuring is yet another reason for deals taking far longer to complete than in less volatile times, as Elizabeth Acland, valuations partner at BDO, explains: “There is so much friction at the moment and there is a risk of paralysis by over-analysis as buyers seek structures, such as deferred considerations and warranties/indemnities, to try and gain security in the event that due diligence does not pick up risks,” she says. Other structures advisers are seeing include cash and share deals, staged acquisitions and partnerships.

While these discussions may be holding up some processes, structuring is at least enabling some M&A activity in a market where there is pent-up demand. Globally, buy-out firms have $1.2tn of dry powder, according to Bain & Co, and an exit overhang to work through, while strategics have waited in the wings for some time. “Activity has been relatively low for a few years now and corporates need to find new routes to revenue growth, scale up, and improve efficiencies and margins,” says Davies. “They may have focused on organic growth in recent years and have strong balance sheets with cash to deploy.”

With so much up in the air, it is hard to predict when activity will pick up in a sustained way, although many are hopeful for more confidence later in the years. “We expect people to become more comfortable with uncertainty and discomfort as we move through 2025,” says Acland. “There is only so long businesses can pause M&A.”

There are opportunities out there even now. Lawson points to public to private activity in the UK as one of these. “There is an opportunistic play here as valuations are much cheaper than in the US for comparable businesses and there is relative stability in the UK,” he says. DoorDash is in the process of taking Deliveroo private for £2.9bn or 13.4x EBITDA, for example. “This seems like an attractive multiple, but the bid price is 54% lower than Deliveroo’s IPO price four years ago,” says Lawson. “Since then, EBITDA has moved from a loss of £131m to a profit of £180m. That is a huge de-rating.”

Change driving activity

Meanwhile, S&W corporate finance partner Kelly Klein believes that fundamental shifts in society and industry stemming from artificial intelligence (AI) and climate change will continue to drive activity even in a highly volatile and uncertain environment. “Both of these are affecting deals and valuations because they are shifting the way that businesses and private equity are looking to create value,” she says. “Alongside more traditional strategies, such as consolidation, we’re also seeing inter-sector activity and collaborative ways of not just pursuing but actually creating growth. That is driving M&A.” 

Examples of this include NVidia seeking collaborations outside the US, such as a recently announced strategic partnership with Saudi Arabia’s Humain, and recent reports of UK energy company Octopus moving into the mobile telecoms space.

The current environment may be causing some headaches in getting deals over the line, but Mobeus’s Price points to history as guide that difficult times can present big opportunity. “We have done some of our best deals in the immediate aftermath of major global shocks where we have backed high quality people running strong, niche businesses,” he says. 

“We see it as our job to make sure we deploy over the next 12 to 18 months because this could be a fantastic value opportunity for us and our investors. But it’s a high-risk environment.”

And that high-risk environment, combined with the shifts of AI and climate change will filter through to the way that businesses, buyers and sellers approach valuations. “So many interrelated factors are now driving value,” says Klein. “Some of these didn’t exist or weren’t thought about in depth up until now. This, coupled with significant volatility that’s here to stay, is making valuations of both private and public businesses increasingly complex, and so valuation techniques will need to adapt.” 

Part of that, she continues, is assessing valuations far more frequently. “Businesses and investors are no longer thinking about valuation as a once or twice a year exercise; they are now thinking about it as a continuous, iterative process so that they can align strategy with valuation and performance.”

So, even if M&A activity slows in the near to medium term, valuations professionals look set to be in high demand.