There are many signs of economic recovery, including an increased interest in leasing company acquisitions. However, the key to a robust M&A market focuses on more realistic valuations on the part of potential sellers. Unfortunately, some equipment leasing company sellers may be derailing their opportunities because they are clinging to the hope that past high multiples will return rather than looking ahead to the new reality reflected in the current M&A market. Acquirers think valuations should reflect the reduced earnings experienced by many leasing companies in the past two years. Their other concerns focus on the reduced price/earnings and price/book value multiples of most publicly owned banks and specialty finance businesses. Sellers, on the other hand, prefer to look at projections as well as historic multiples. Unfortunately, many potential sellers have not yet accepted the new realities impacting the valuations of their companies. This often results in a stalemate, with a buyer looking for a bargain and a seller expecting to command an unrealistically high selling price. There is at least one way to narrow the disparity: a carefully crafted “earn out” arrangement, where part of the purchase price is contingent upon future results.

Do you agree unrealistic valuations are the leading deal killers today? If not, what is your view?

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