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Transactions completed in the third quarter of 2020 suggest a market “stunned by the pandemic, but with a cat-like capacity to land on its feet,” according to GF Data, a provider of information for use in valuing and assessing M&A transactions to private equity firms, investors and lenders.

The firm collects and publishes proprietary transaction information, on a blind and confidential basis, from a pool of active contributors comprised of 228 private equity firms, mezzanine groups and other financial sponsors.

In the third quarter, GF Data’s contributors completed 50 transactions that meet the firm’s parameters of Total Enterprise Value (TEV) of $10 million to $250 million and TEV/Trailing Twelve Months (TTM) Adjusted Ebitda of 3-15x.

“Completed deal volume stood at about 80 percent of the year-ago quarter in 3Q,” said GF Data CEO Andrew Greenberg. “This is a big improvement from 2Q, when the coronavirus hit with full force, and volume fell to about 40 percent of what it would have been.”

“At the same time,” Greenberg said, “average valuations eased from 7.4x to 6.7x.  We thought that the deals that found the finish line in 2Q reflected a healthy dose of survivorship bias. This was bound to abate as more deals got done in 3Q. We are mindful that a handful of sectors experienced no diminution in value, and some categories benefitted from changed dynamics. On balance, we think the ‘Covid effect’ is represented more by a rolling average than by the quarter-to-quarter movement in valuations – in other words, an adjustment of .3-.4x overall.”

According to B. Graeme Frazier IV, GF Data’s Co-Founder and Principal, “Debt utilization returned to pre-Covid levels, but debt composition continued to reflect a more cautious environment. Average total debt bounced back to the 3.8-3.9x range after tumbling half a turn in 2Q.  Senior debt, however, was still tamped down.”

“The pick-up in total debt gave needed relief to sponsors,” Frazier continued.  “Average equity share on platform acquisitions in 2Q had surpassed 60 percent.  But the restrained senior debt piece means a greater share of average capital structure being picked up by subordinated debt providers – a dynamic we have long associated with challenging or at least discerning market conditions.”

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