Easy A’s and Killer B’s

Headlined by a near-record valuation mark of 7.8x Trailing Twelve Months (TTM) Adjusted EBITDA, completed deal activity in the fourth quarter of 2018 showed that there is plenty of “oomph” remaining in this extended seller’s market, according to GF Data’s just-released February report.

Valuations averaged 7.2x for all of 2018, essentially in line with 7.3x in the prior year. Two hundred private equity groups and other deal sponsors reported to the data-tracking firm on 62 transactions closed in the fourth quarter in the $10 million to $250 million TEV range and at multiples of 3 to 15x Trailing Twelve Months Adjusted EBITDA.

“Last quarter we talked about ‘a bit of a soft landing’ in some market segments, yet double-digit multiples remain in force on $100-million-plus transactions and in selected industries,” said GF Data CEO Andrew Greenberg. “We think both dynamics may be at work at the same time — that valuations on “A” properties in “B” sectors may have eased, while “B” properties in “A” sectors continue to find new headroom.”

Senior and total debt multiples for the year both ticked down from record highs reached in 2017.  Leverage multiples for the year were 3.0x and 3.9x, respectively. “The year-end report lends even more support to the proposition that debt is being constrained by buyer capitalization decisions rather than debt availability,” said Graeme Frazier, IV, GF Data’s co-founder and principal.

“The percentage of deals completed with debt at or close to the maximum available crested at 42.3% of all deals in 2016.  The figure fell to 39.2% in 2017 and then to 31.3% in 2018,” added Mr. Frazier. “Meanwhile, the average debt loads for the deals that were completed at or close to maximum tolerance remained essentially unchanged at 4.4x in 2018, compared to 4.5x in 2017.”

“The latest GF Data report evidences that private equity activity has not lost much steam and that the industry remains highly competitive,” said Glenn Oken, managing director at Mangrove Equity Partners.  “Our firm has always placed a premium on assessing the operational dimension of lower middle market opportunities that are not everyone’s idea of squeaky clean perfection. Sustained elevated valuations have made this an even broader imperative in our industry.”

GF Data provides reliable 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 200 private equity firms, mezzanine groups and other financial sponsors. Data contributors and other subscribers receive five 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; (4) quarterly industry drilldown reports; and (5) 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 bw@gfdata.com or 610-616-4607.

GF Data is based near Philadelphia in Conshohocken, PA (www.gfdata.com).

© 2019 Private Equity Professional | February 21, 2019

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