Sellers and buyers continued to revel in resumed transaction activity, but the after-effects of the unprecedented global health crisis has left underlying conditions difficult to read, according to GF Data’s just — released first-quarter report.
GF Datas 236 active private equity contributors completed 74 transactions in the quarter meeting the data tracking firms parameters Total Enterprise Value (TEV) from $10 million to $250 million and TEV/Trailing Twelve Months (TTM) Adjusted EBITDA of 3x to 15x. This is lighter than volume in the year-ago first quarter but follows on the markets torrid return to activity in the final months of 2020.
According to GF Data, valuations for the period averaged 6.8x TTM Adjusted EBITDA.
This is the third quarter in which aggregate pricing has been slightly below the range that prevailed in the years preceding the pandemic, said Andrew Greenberg, the CEO of GF Data. This strikes many of us as low in relation to anecdotal experience.
Our report takes a deeper dive that provides clarity, though.
A substantial subset of deals are being valued at or above pre-COVID levels, but three factors are obscuring them in the overall data: (a) an unprecedented gap in valuation between better and less well-performing businesses; (b) more add-ons as opposed to platform investments: and (c) more deals being completed with seller financing or earnout components not included in at-closing valuations, added Mr. Greenberg.
The preponderance of add-on or roll-up investments is also affecting the debt data, said B. Graeme Frazier, IV, a co-founder and principal at GF Data. Total debt overall averaged 4.0x for the quarter, with senior debt accounting for 3.7x. The narrow sliver of subordinated debt is a result of the increased percentage of add-ons as opposed to platform deals in the sample. When we isolate just platform transactions, total and senior debt are 3.3x and 2.8x, respectively.
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 236 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 drill-down reports; and (5) continuous access, through GF Datas secure website, to detailed valuation data organized by NAICS code.