The private M&A market continues to be driven by a scarcity of attractive middle market businesses for sale and an abundance of debt financing available to their buyers, according to GF Data’s second quarter report.
Overall valuations continued to be in ‘the mid-sixes,” averaging 6.4 Trailing Twelve Months (TTM) Adjusted EBITDA on transactions reported by the 191 private equity groups and other financial sponsors that are active contributors to GF Data. Data contributors report on completed transactions with Total Enterprise Values (TEV) in the $10 million to $250 million range. The active universe reported 41 deals for 2Q, up from 34 in 1Q and markedly more than the 24 reported in the second quarter of 2013.
“The premiums accorded for size and quality are at or close to all-time highs,” said GF Data CEO Andrew Greenberg, commenting on a universe of nearly 2,000 transactions dating back to 2003. Businesses in the $50-250 million tier of the market traded at an average of 7.6x in the first six months of this year, compared to 5.4x on deals in the $10-50 million bracket. The spread narrowed from the first quarter to the second, reflecting Mr. Greenberg said, “Some natural reversion to mean, but also the reality that more smaller business are benefiting from the perceived scarcity of desirable properties for sale.”
Average total debt on completed transactions has averaged 3.8x in the year to date, compared to an average of 3.4x in each of the three prior years. “Leverage increasing at a faster rate than valuation means financial sponsors are able to complete deals with less equity. Average equity contribution in the year to date is about 43 percent, down from the mid to high forties over the past few years,” said B. Graeme Frazier, IV, GF Data Co-Founder and Principal.
Michael Fisch, Managing Director in the Valuations & Opinions Group at Lincoln International noted that “Financial performance improved in 2Q for a broad range of private middle market companies following a dip in revenue and EBITDA growth in 1Q. Although companies with less than $10 million in EBITDA continue to struggle, improving business fundamentals and aggressive valuations point to accelerating M&A activity in the near-term.”
GF Data provides external information for use in valuing and assessing M&A transactions to private equity firms, investors, lenders and other users. GF Data collects and publishes proprietary transaction information from private equity groups on a blind and confidential basis. The pool of active contributors comprises 191 private equity firms, mezzanine groups and other financial sponsors. Data contributors and paid subscribers receive four products: (1) a quarterly report containing high-level valuation, volume and leverage data; (2) a quarterly supplement offering detailed information on debt and capital structure trends; (3) a semi-annual supplement o indemnification cap, escrow and other details; and (4) continuous access, through GF Data’s secure website, to detailed valuation data organized by NAICS code.
For information on subscribing or on contributing data as a private equity participant, please contact Bob Wegbreit at [email protected] or 610-260-6263.
© 2014 PEPD • Private Equity’s Leading News Magazine • 8-26-14
