Are Acquisition Multiples too High ?
August '11
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Summary:
We recently attended a dinner with a dozen or so CEOs to talk about best practices in portfolio management. While we covered a wide range of topics, there appeared to be universal consensus that:
- there is widespread excess cash on corporate balance sheets that needs to find a productive home
- in a sluggish growth economy, investing to get additional organic growth is both difficult and won't make a big dent in the cash balance
- everyone is now looking for attractive acquisitions but the enterprise value-to-EBTIDA multiples are so high that there are few, if any, good ideas out there
Our view is a bit different on both organic growth (we believe there is far more opportunity in core businesses) and whether the level of acquisition multiples is a real constraint.