Flash Market Survey September 2020 - La Honda Advisors
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Flash Market Survey September 2020 We would like to thank all of those who participated in our recent market conditions survey. At a time when we’re all trying to figure things out, we found your responses to be incredibly informative. In some cases, it was remarkable to see virtual unanimity around certain things (all companies and investors reducing cost burden and virtually everyone cautious on public equity markets from here to year end) and a telling dichotomy around others (when we’ll return to pre-pandemic levels of activity and the current impact on valuations). La Honda Advisors LLC is a registered broker-dealer | Member FINRA/SIPC | LaHondaAdvisors.com 1
Private Market Activity
First, by way of background, we share data on M&A and private financing activity for
three sectors — Enterprise SaaS, eCommerce and Healthcare IT — as a view into the
broader growth sector economy.
Enterprise SaaS
M&A and Private Financing Data Reflect a Q2 Slowdown. Whether measured by the
number of transactions, the median revenue multiple on M&A transactions (for those
where data is available) or the aggregate value of private financing transactions, the
deal markets for Enteprise SaaS companies fell off progressively from Q4 2019 to
Q2 2020. To us, this is an accurate representation of the general trend across most
technology sectors.
$5,279 $5,203 $5,211
$4,927
$4,683
$4,323
$4,029 $4,028
$3,844
$3,575
$3,468
$2,863
567 564 569
$2,252 537
$2,054 $1,974
$1,816 508
$1,765
$1,592 480 487
$1,546 $1,474 479 478
444 443
430
415 420 422
381 383 388
373
314
292 296
277 284 280
275
263 260 266
245
233 232 228 235 229
220 214
210
203
5.3x
183
4.5x 4.3x 4.6x 4.4x
4.3x 4.2x 4.1x
4.0x 3.9x
3.3x 3.3x
3.1x 2.9x 3.1x 3.0x
2.7x
2.4x 2.3x
N/A
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2015 2016 2017 2018 2019 2020
M&A Median Multiple M&A Deal Count Financing Deal Count Financing Capital Invested ($mm)
Source: 451 Research & Pitchbook
La Honda Advisors LLC is a registered broker-dealer | Member FINRA/SIPC | LaHondaAdvisors.com 2eCommerce
Despite the General Boost to eCommerce, Deal Activity Slowed There, Too. As we
are all well aware, eCommerce generally excelled during the pandemic. That said,
M&A and financing activity slowed in this sector as well. What we know from first
hand experience is that, conditions were at first so unknown and volatile for these
companies, the potential parties on both sides of transactions elected to pause
activity as they sorted out the longer term ramifications.
$2,542 $2,583
329
316
$2,073 $1,731
297
289
$1,706 $1,797 284
$1,604 $1,706
272
$1,537 265
$1,331 $1,418
$1,227 $1,351 255
$1,289
240 $1,213
236 238 $1,018
230 232 $1,066
$1,169 220
217
$591 206
$781 195 195
186
134
4.1x
3.7x
3.3x
2.8x
2.3x
1.9x 1.7x
1.6x 1.3x 1.3x
0.7x 0.8x 1.0x 0.9x
0.4x 0.6x
N/A N/A
N/A N/A
48 49
46 44 46 43 44
42 41
38 36 36 37 35
32 30
27 28
23 19
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2015 2016 2017 2018 2019 2020
M&A Median Multiple M&A Deal Count Financing Deal Count Financing Capital Invested ($mm)
Source: 451 Research & Pitchbook
La Honda Advisors LLC is a registered broker-dealer | Member FINRA/SIPC | LaHondaAdvisors.com 3Healthcare IT
Transactions Continue Relatively Unabated in HCIT. In the case of this sector where
the pandemic placed a spotlight on glaring opportunities (e.g., telemedicine, patient
engagement, analytics), the wheels of finance continued to spin. While private
financing deal volume in terms of numbers declined somewhat, this was a trend that
began in early 2019 and is a symptom of other factors. Total dollars invested in the
space actually increased from Q4 2019 to Q2 2020 and the volume of and multiples on
M&A transactions continued at normal levels.
$2,138
$1,861
$1,649
$1,503
395 $1,492 $1,444
$1,216 $1,215
$1,098
$955 $926
$949 $832
$702 346
$699
$602
$484 $459 325
$415 $414 315
305
280 282 280
252 252
246 244
239 240
231
211 210
197
168
153
5.7x 5.6x 5.3x
5.0x 4.7x 5.0x 4.7x
4.5x
3.8x 3.6x 3.7x
3.1x 3.3x 3.2x
2.7x 2.2x
47 1.5x 44 1.5x 44
40 1.4x 1.2x
38 37
32 30 30 30 30 29 28 28 31 34
24 22 24 27
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2015 2016 2017 2018 2019 2020
M&A Median Multiple M&A Deal Count Financing Deal Count Financing Capital Invested ($mm)
Source: 451 Research & Pitchbook
La Honda Advisors LLC is a registered broker-dealer | Member FINRA/SIPC | LaHondaAdvisors.com 4Survey Results
We were pleased to have representation in the survey from a balanced group of C-level
executives, Corporate Development professionals, and financial investors (venture
and Private Equity). It was evident from the responses that no one feels pressured to
complete acquisitions or investments but that they are all assiduously thinking about
how best to move forward constructively. They feel no pressure to put money to work
and can generally do so without even having to meet in person, but they will clearly be
very thoughtful and studied when they do and, above all else, need to understand how
this new environment affects a company’s prospects — near- and long-term.
Key Findings
• Don’t Expect an Immediate Turnaround in the Level of Activity. Most respondents
report a slowing in their investment and M&A activity of up to 25% of normal. This
aligns with the general data and signals a reduced level of activity but not a dire
decrease. Given the long tenure of the robust tech market pre-pandemic (starting
in 2009), we all were accustomed to very high levels of both investment and M&A.
However, respondents are split on when we will return to normal levels and query
what is deemed “normal”. In our survey, we saw an almost perfectly flat distribution
from (a) “now”, to (b) “3 to 6 months from now”, to (c) “over a year from now”. We
found that this is reinforced by comments made about other concerns people have
beyond finding a solution to the current pandemic. Politics, debt market issues,
and other factors weigh on our respondents’ minds.
• For the Right Opportunities, Buyers and Investors Will Act Now. Most respondents
indicated that while it may take a little longer to diligence a transaction and that
they absolutely must understand how the current environment impacts a business,
they can close a transaction without in-person meetings. Left unsaid, but implied,
is that organizations still have the currency and wherewithal to close transactions.
Some indicated that many highly promising and stable businesses chose to step
away from the market as financing or M&A candidates — a “slower pipeline of
actionable deals” as one put it — thus highlighting that this is a two-way street.
• Valuation is a Trick Question. A quarter of our respondents indicated that they saw
current valuations as on par with pre-pandemic levels. The rest were split between
“down less than 10%” and “down 10% to 25%”. More concerning to us, over 90% of
respondents predicted that the Nasdaq will close below current levels at year
end. Seldom do we see this level of caution about the public market, but we have
La Honda Advisors LLC is a registered broker-dealer | Member FINRA/SIPC | LaHondaAdvisors.com 5to admit being surprised ourselves as to how quickly public equities have stabilized
and even rebounded. Marry this with comments about needing to understand the
particulars of individual situations, concerns about the debt markets, political
uncertainty, etc., and we believe the valuation question is even more situation-
specific than before. Unless a business uniquely benefits from the current
environment and can back it up with real results, we’d expect some pressure on
valuations to prevail.
• Beware Other Factors. We were reminded by our diligent survey participants that
other important things often get drowned out by headline news. To us, these are
real issues to keep our eyes on going forward:
» Debt Markets. More than a few respondents referenced concerns about the
health of the debt markets. There is some worry that federal stimulus and PPP
loans may have pushed issues to the background that many fear lurking.
» Long-Term Growth Prospects. Several respondents spoke to revisiting
overall long-term fundamental growth assumptions in their own and others’
businesses. Beyond the tactical “how does the pandemic affect things” to what
it means in terms of sectors and the overall economy going forward.
» Political Uncertainty. We may be over-analyzing but it seemed to us that,
beyond the near-term election, some respondents were concerned about the
overall political environment and where the U.S. may be headed in the next few
years and its impact on the economy, in particular, for growth companies.
We were impressed with the insightful feedback from this brief survey. We found
that it reinforced what we see in our own deal activity and calls out potential issues
to keep our eyes on going forward. We are optimistic for the remainder of 2020 and
anticipate an increase in M&A and private financings as COVID restrictions abate.
We sense this from our own client discussions. Furthermore, we perceive the surge
in recent IPO filings to be a positive signal for both the public and private capital
markets. Should IPO debuts for the likes of AirBnB, Asana, Palantir, Snowflake, Unity
Software and others be successful, we expect that, as in years past, this will gradually
drive heightened interest in private markets.
La Honda Advisors LLC is a registered broker-dealer | Member FINRA/SIPC | LaHondaAdvisors.com 6La Honda Advisors is an
investment banking boutique
focused on achieving exceptional
M&A and financing outcomes for
our clients. Our clients are the
innovators and technology leaders
who build great companies
and seek more creative, nimble
approaches. While based in Silicon
Valley, our reach is global.
For more information on La Honda
Advisors, please visit our website at
www.lahondaadvisors.com or contact
our Partners.
David Ketsdever, Partner
david@lahondaadvisors.com
Julie Levenson, Partner
julie@lahondaadvisors.com
Neither La Honda Advisors nor any associated persons are currently
receiving any compensation, providing any services, or have any debt
or equity investments in any firm that is the subject of this white paper.
La Honda Advisors LLC is a registered broker-dealer | Member FINRA/SIPC | LaHondaAdvisors.com 7You can also read
