Chart of the Week
The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from that week’s Deal Tracker that we believe are impactful for investors, companies and acquirers.
Viridian Capital Chart of the Week: WHAT ARE THE TRENDS IN THE COMPOSITION OF M&A CONSIDERATION?
- The Viridian Chart of the Week looks at the trends in the composition of M&A consideration. The blue line shows the percentage of total consideration that consisted of stock. The orange and green lines show the percentage for cash and seller notes, respectively. The dotted lines are the trendlines for each type of consideration.
- Viridian aggregated all of the M&A data across all geographies and sectors. The total transaction value over the period was $45.5B in 1,102 transactions. Note that a significant number of M&A transactions do not disclose either the total transaction value or the breakout into types of consideration and were therefore not included in the chart. We believe, nonetheless, that the data available portrays a picture that is consistent with our experience in the industry.
- It is hardly a surprise that stock has been decreasing as a percentage of consideration. Companies are reluctant to use their stock because they believe trading values are significantly below intrinsic values. Sellers, meanwhile, are cognizant of the severe losses experienced by holders of MSO stocks.
- But while stock has declined as a percentage of consideration, it has not been cash that has made up the difference. Cash has remained roughly flat at about 30% of total consideration.
- Instead, seller notes have taken up the slack, rising to 35% of the total consideration in the last half-year period.
- How will the trends in M&A consideration develop going forward? One thing is clear: cash is still dear. With the equity market all but closed to plant-touching businesses and many MSOs approaching their debt-carrying capacity, the incentive to carefully husband cash is stronger than ever.
- Accordingly, cash may remain roughly constant as a percentage of consideration, but acquirers with strong cash access may be able to close deals at more attractive valuations than ever before.
