“You have this arbitrage between what the big guys sell for and what the little guys sell for,” M&A advisory exec Dave Harvey tells our Peter J. Brennan, speaking on where pricing’s going in the world of private equity-backed corporate acquisitions.
Harvey knows his numbers; his Newport Beach-based Harvey & Co. has been busy of late helping area firms like Brea’s CoolSys—one of several notable PE-backed firms based in OC that employ an aggressive roll-up strategy—grow their business through the purchase of smaller, regional companies.
His typical transaction involves a business with annual sales in the $17M range.
Larger businesses are significantly more expensive to buy, in terms of EBITDA multiples, Harvey says. See Brennan’s story on this page for more.
When considering a firm’s valuation, “it’s all about growth—going from medium to large,” Harvey says.
Case in point: Allied Universal’s pursuit of U.K. rival G4S PLC, a deal that would create the world’s largest private security services firms. The combined firm’s annual sales would approach $20B.
Santa Ana’s Allied, which has grown via acquisitions of numerous other security firms both large and small over the past two decades, would become OC’s largest private company by revenue if the deal is completed.
G4S initially was valued around $3.8B in September, after a bid by another company. Allied, backed in part by PE firm Warburg Pincus, would later offer $5.1B. Allied is now “set to win the bidding war” with an improved $5.3B offer, the Wall Street Journal reported last week.
The price for G4S “jumped through rounds of bidding, eating into any potential gains generated from the acquisition,” the WSJ noted.
While Allied Universal is set to rise in the ranks of OC’s top private companies, Fountain Valley memory products giant Kingston Technology, currently the area’s top private company with more than $13B in sales, is getting a bit smaller.
HP Inc. last week said it would be purchasing the HyperX gaming products maker from Kingston in a $425M deal.
The buyer tells our Kevin Costelloe that “HP intends to keep all HyperX locations in the same general area.”
The computer and printer giant also says “there are no workforce reductions associated” with the acquisition announced last week.
Notably, Kingston said the deal is strictly for HyperX’s “gaming peripherals portfolio.” Kingston will retain its DRAM, flash, and SSD products for gamers, it said.
The $425M price for HyperX might remind Kingston watchers of another transaction a few decades ago.
Founders John Tu and David Sun—in January named our Businesspeople of the Year for the tech sector—sold 80% of Kingston to Japan-based SoftBank Corp. for $1.5B in 1996, and generously shared $100M of the proceeds with employees.
Tu and Sun bought back the 80% share in 1999 for a discounted price not far off the value of last week’s deal, $450M.
