The third quarter of 2015 represented more of the same for private middle market M&A – or less of the same, depending on what you are looking at.
The 200 private equity firms and other deal sponsors that are active contributors to GF Data reported 37 third-quarter transactions in the $10 million to $250 million Total Enterprise Value (TEV) range. Valuations for the quarter averaged 7.1x, the highest quarterly mark in the 13-year history of our data base.
Deal activity in Q3 represented “more of the same” in the sense that market drivers identified in the first half of the year were as evident or more so in the latest period.
“Business buyers are still rewarding size, financial performance, management continuity and institutional ownership prior to sale,” said Andrew Greenberg, GF Data’s CEO. “For all the talk about ‘how long can it last,’ we see no signs in the data that conditions in this seller’s market are abating.”
Transaction activity constituted “less of the same” in that these trends are being demonstrated across a smaller number of deals getting done. The 37 reported transactions in Q3 represented a drop from 51 in Q2 and 50 in the third quarter of last year.
Debt support for private equity sponsored transactions remained red hot, in particular for add-on acquisitions. In the year to date, total debt on these deals has averaged 5.4x the target’s adjusted EBITDA. According to B. Graeme Frazier, IV, GF Data’s Co-Founder and Principal, “Buyers and deal professionals confirm that completed deal volume was light in the summer quarter, but they hope the pending uptick in interest rates will pull sellers off the sidelines and make for a robust market going forward. There is still plenty of debt support – particularly where an add-on can be financed on the strength of a much larger portfolio holding.”
“Multiples for great businesses remain as high as ever,” said Rob Parker, Co-Founder and Managing Director of Quarton Partners, a middle-market investment banking firm based in Birmingham, MI. “It will be interesting to see if lenders get a little more cautious in 2016, and if that has any impact on valuations in the middle market.”
GF Data provides reliable 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 200 private equity firms, mezzanine groups and other financial sponsors.
Data contributors and other 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 on 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 firstname.lastname@example.org or 610-260-6263. GF Data is based in West Conshohocken, PA (www.gfdataresources.com).
© 2015 PEPD • Private Equity’s Leading News Magazine • 11-20-15