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The third quarter of 2021 was one of those rare periods in which actual valuations were on par with the deal community’s collective sense of a torrid seller’s market,
according to GF Data’s just-released report.

Average valuations in the quarter averaged 7.6x – the highest quarterly mark in GF Data’s 16-year history.

The data tracking firm’s 253 active private equity contributors completed 68 transactions in the quarter meeting its deal parameters – Total Enterprise Value (TEV) of $10 million to $250 million and TEV/Trailing Twelve Months (TTM) Adjusted EBITDA of 3x to 15x.

“As is so often the case, the private debt market both tracked and boosted the private equity market,” said Andrew Greenberg, CEO of GF Data. “Valuations were up .4x from the second quarter. Total debt jumped a half turn, from 3.6x to 4.1x, meaning that buyers on average were paying more but were able to reduce average equity contribution slightly.”

While valuations surged across the board, there continues to be signs of a bifurcated market. “Above-average financial performers usually account for about 56 percent of total reported transactions. For the past two quarters, the incidence has been 62 percent, with no reduction in premium against the rest of the pack,” said B. Graeme Frazier, a co-founder and principal of GF Data. “This suggests that more favored businesses are finding buyers at healthy prices, while other would-be sellers are either accepting more modest valuations or not trading at all.”

“The longstanding seller-friendly M&A market has been driven by a massive overhang of private equity and corporate cash chasing a limited number of quality transactions,” said David Dunstan, a managing director at Citizens Capital Markets. “Despite the notable increase in transaction activity in 2021, the premiums paid continue to rise, highlighting the reality that we are looking at a multi-year equity capital overhang that will continue to drive heightened valuation expectations.”

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 253 private equity firms, mezzanine groups and other financial sponsors.

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