Middle market valuations achieved a peak in 2016, according to GF Data. Overall valuations for private equity sponsored transactions valued between $10 million and $250 million averaged 6.9x Trailing Twelve Months (TTM) Adjusted EBITDA, a record high in a data set that goes back to 2003.
After a quiet third quarter, transaction volume picked up in the fourth quarter. The 206 private equity groups and other deal sponsors that are active contributors to the firm’s data base completed 52 transactions meeting GF Data’s parameters: $10 million to $250 million total enterprise value (TEV) and TEV/Adjusted EBITDA multiples of 3x to 15x. These parameters bring the completed transaction volume to the year to 209, down from 235 in 2015.
“Whether this represents a peak sustainable for some period of time or a crest in a rationalizing market remains to be seen”, said Andrew Greenberg, GF Data’s CEO. “The hallmarks of 2016 deal activity include a preponderance of completed deals involving selling businesses offering above-average financial characteristics,” said Mr. Greenberg. “We also noted a retreat in debt levels on transactions not featuring junior capital provided separately from the senior debt. Average debt on senior-only transactions declined from 3.8x to 3.4x.”
“In the the fourth quarter of 2016 we saw a decline in average debt levels on both senior debt-only transactions and unitranche deals, said B. Graeme Frazier, IV, GF Data’s co- founder and principal. We will see if this is a trend or an abberation, as subordinated debt availability fills the gap.”
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 206 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@gfdata.com or at 610-616-4607.