After months of middle-market deal professionals and acquirers describing heavy deal activity characterized by abundant leverage and upward valuation pressure, these trends are at last fully present in GF Data’s quarterly numbers.
“It brings to mind the old trader’s expression ‘buy the rumor, sell the fact,’” said GF Data CEO Andrew Greenberg. “Industry discourse has gone from ‘Where are the sellers?’ to ‘How long will it last?’”
GF Data’s 196 active private equity data contributors completed 53 deals in the $10 million to $250 million Total Enterprise Value (TEV) range in the first quarter of 2015, at an average valuation of 6.8x Trailing Twelve Months (TTM) Adjusted EBITDA. This valuation mark continues a steady upward march in aggregate pricing levels from 6.2x in the first quarter of 2014.
According to Mr. Greenberg the completed transaction activity for the quarter is also notable. “We typically see a drop off in completed deal volume from the fourth quarter of one year to the first quarter of the next in the range of 25 percent. For different reasons, that drop was actually more pronounced the past two years. Our universe of contributors reported 53 closed deals meeting our specifications in the first quarter, which is only a slight drop-off from the 56 reported in the fourth quarter of 2014. This is a level of momentum in completed-deal activity we’ve not seen in eight years.”
As noted in the past several quarters, GF Data continues to see the rise in equity values as reflecting the even more pronounced surge in debt availability and utilization. According to B. Graeme Frazier, IV, GF Data’s Co-Founder and Principal, “Average equity share has dropped steadily over the past two years from 49.1% in 2013 to about 44% in the first quarter of 2015. Our report shows wide variations in average equity contribution for various size cuts as a result of continued valuation discipline on smaller deals and unprecedented debt availability on larger ones.”
“M&A valuations appear destined to hold firm or even possibly still rise as a result of this persistent low interest rate environment, cooperative capital markets and a high degree of buyer confidence,” said Joe Culley, Co-Head of Investment Banking at Janney Montgomery Scott. “Our sell-side clients continue to be pleased with not only what valuations they are receiving but also the favorable contract terms and conditions they are successfully negotiating.”
GF Data provides external information for use in valuing and assessing M&A transactions to private equity firms, investors, lenders and other users. The firm collects and publishes proprietary transaction information from private equity groups on a blind and confidential basis. The pool of active contributors comprises 196 private equity firms, mezzanine groups and other financial sponsors.
Data contributors and other subscribers to GF Data 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 on indemnification cap, escrow and other details; and (4) continuous access, through GF Data’s 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@example.com or 610-260-6263. GF Data is based in the Philadelphia suburb of West Conshohocken, PA (www.gfdataresources.com).
2015 PEPD • Private Equity’s Leading News Magazine • 5-19-15