Middle-market M&A activity in the third quarter seemed to settle further into the glide path GF Data® has observed over the past couple of years – steady but not overpowering completed deal volume, record valuations and unwavering debt support – according to the data tracking firm’s November report.
The 206 private equity firms and other deal sponsors that are activity contributors reported on 30 transactions closed in 3Q and meeting GF Data’s parameters: total enterprise value (TEV) of $10 million to $250 million, and TEV/Adjusted EBITDA of 3x to 15x. This brings completed deal volume for the year to 148, down slightly from 169 in the first nine months of last year.
Overall valuations for the year to date averaged 7.0x, up from 6.7x in 2014 and 2015. This continues the inexorable upward trend since the onset of the financial recovery over the period 2010 to 2011.
“High valuations combined with middling volume tends to support the general impression that the deals getting done in the current environment preponderantly involve better businesses,” said Andrew T. Greenberg, GF Data’s CEO, “But our data also shows the extent to which strong valuations are being applied to some sellers with good but not overpowering financial characteristics.”
Total Debt/EBITDA settled in at 4.0x Adjusted EBITDA in the first nine months of 2016. According to B. Graeme Frazier, IV, GF Data’s Co-Founder and Principal, “We’ve been watching out for a tightening in debt availability over the past year or two, but in fact there are more signs of firming up than retrenchment.”
“We think high valuations are one factor contributing to the moderate levels of deal volume,” said John Brignola, Managing Partner of LBC Credit Partners, a Philadelphia-based provider of middle-market financing solutions. “When valuations are stretched, minimal variance is tolerated between reported EBITDA and its confirmation through quality of earnings reports. We have seen deals stall or collapse over minor EBITDA variances given elevated purchase multiples.”
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.
“GF Data is one of the only data sources that can provide our clients with valuation data specific to the size of their business from the perspective of financial buyers.”
—Jeremy Ellis, Genesis Capital
“GF Data reports on what financial buyers are really paying for middle market companies. They also provide valuable data on leverage, pricing, and terms and conditions. There is no other reliable source for this type of data.”
—Ronald Miller, President and Managing Director, Cleary Gull Inc.
“As the leading underwriter of public capital in the BDC sector, we rely on GF Data to give us a competitive edge and keep us current on leverage and valuation levels.”
—Joe Culley, Head of Capital Markets, Janney Montgomery Scott
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.