Some year-end 2024 M&A stat updates & perspective:
- 95% of M&A activity in 2024 were middle market deals (S&P Global)
- PE sponsor to PE sponsor deals reached ten-year high (45%) in 2024. (McKinsey) We have seen this play out in franchising....once on the PE Profit Ladder, brands are likely keep re-trading.
- $2.5 trillion of dry powder still available (S&P Global)
- Multiples @ exit increased, partly because sponsors were only successfully exiting high-quality assets with strong demand, driving up valuation averages (McKinsey). The rest were relegated to broken auction status and must try again later.
- Median global buyout entry multiple 11.9x (McKinsey). We have seen franchisor trades in franchising exceed averages for similiarly-sized non-franchise deals. But too many sellers still come to market with inflated expectations - or we would see more deals getting done. You have to read the room.
- Average leverage 4.1x debt to EBITDA (below 4.7x seen in 2021) demonstrating both valuation pressure and underwriting discipline (McKinsey)
....said another way, frothy pricing specifically driven by cheap debt that we saw in 2021 hasn't returned and likely won't anytime soon. Only high quality assets are seeing spirited bidding but this is based on their own merits.
- Public to private deals will get more attention this year - if the markets undervalue good companies taking them private may be a better option than acquiring something from a downstream PE fund.
- IPO exits remain challenging. PE-backed IPOs fell 7% in value and 20% in count in 2024. (McKinsey) In franchising, this means a small number of very large funds look like IPO-waiting rooms where assets can be carefully groomed, optimized, and combined to create IPO-ready packages, while tapping the securitization market to pay themselves for the trouble while they are waiting.
- Exit backlog remains an issue. Average buyout hold time is 6.7 years. (McKinsey). We've seen more re-trading among limited partners and continuation funds recently to cope with this, but it's not a long term solution. This forces more PE sponsors to focus on the operating mechanics of value creation, not financial engineering. In franchising, this means a focus on everything that keeps franchisees focused on unit growth and increasing same store sales. The flip side is the opportunity for well-coordinated franchisee voices to be HEARD because management and sponsors need engagement and momentum from the franchisee base.