After a notably slack third quarter, middle-market M&A volume picked up in the final months of 2015, according to GF Data’s year-end report, resulting in aggregate valuation and volume figures that appeared to extend the “seller’s market” conditions of the prior few years.
The 204 private equity groups and other deal sponsors that are active GF Data contributors reported 62 fourth quarter transactions in the $10 million to $250 million Total Enterprise Value (TEV) range. This is markedly ahead of 39 closed transactions in the third quarter, and nearly on par with the 65 transactions closed in the fourth quarter of 2014.
In the end, 2015 looked a lot like 2014. Firms in the GF Data universe completed 218 deals in 2015 compared to 211 in 2014. In both years, valuations averaged 6.7x Trailing Twelve Months (TTM) EBITDA.
“We think the continuity in the headline numbers obscures some fairly significant shifts,” said Andrew Greenberg, CEO of GF Data. “Still-rising valuations on larger transactions, record premiums for selling businesses of above-average financial quality and continued declines in average equity contribution made possible by abundant debt – these are all signs of an even more mature seller’s market.”
Total debt to EBITDA averaged 3.9x for the year. While debt levels were the highest in the 13-year history of the firm’s data set, total debt actually receded slightly the fourth quarter. According to B. Graeme Frazier, IV, GF Data’s Co-Founder and Principal, “Is this a random blip in the numbers or the first sign of a tightening debt market? That’s the pivotal factor for us to watch in these first months of 2016.”
“Given the recent increase in the federal funds rate, along with global volatility due to China and the energy markets, we are certainly tracking leverage availability for transactions,” said Duane Donner, Managing Partner of Founders Investment Banking (www.foundersib.com) based in Birmingham, AL. “Most owners are aware that valuations for middle-market companies are at all-time highs and considering if now would be the right time to explore M&A options and objectives. We still believe there is runway in 2016, but are similarly cautious for 2017 and beyond.”
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 204 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 bw@gfdataresources.com or 610-260-6263. GF Data is based in West Conshohocken, PA (www.gfdataresources.com).
© 2016 PEPD • Private Equity’s Leading News Magazine • 2-22-16
