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Within the GF Data universe of middle-market deal sponsors, the slowdown in M&A activity has been neither as deep nor as prolonged as general industry reports would suggest, according to the deal tracking firm’s second-quarter report.

Andy Greenberg and B. Graeme Frazier,
After a quiet first quarter, completed deal volume perked up in 2Q. The 205 private equity groups and other deal sponsors that are active contributors completed 58 deals meeting GF Data’s parameters — $10 million to $250 million TEV and TEV/Adjusted EBITDA multiples of 3x to 15x. This is a marked pick-up from 46 reported deals in 1Q and comparable to 54 deals in 2Q of 2015.

Overall valuations averaged 6.8x TTM Adjusted EBITDA, slightly up from the prior two quarters but essentially in line with market averages since 2014.

“While there clearly was a drop in completed deal activity over the winter,” said Andrew Greenberg, GF Data’s CEO, “Volume since has been solid, and buyers are continuing to be called upon to pay up for business size and other desired characteristics. The size premium we measure – the spread between average valuations at $10 million to $50 million and $50 million to
$250 million – was 2.2x EBITDA in the first half – almost exactly in line with the spread in 2014- 15.”

GF Data 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.

Valuations continue to be held aloft by debt levels, particularly on larger transactions. According to B. Graeme Frazier, IV, GF Data’s Co-Founder and Principal, “Average total debt multiples have crept up from the mid-threes to the high threes over the past couple of years. Debt levels haven’t receded, but we have our eye on other slight shifts that might or might not turn out to be signs of retrenchment.”

Mr. Frazier cited downticks in valuation and leverage on add-on acquisitions, reduced incidence of uni-tranche financing, and increased incidence of completed deals involving above-average financial performers.

“We’ve seen two years of high valuations supported by high leverage. While we are unsure when there will be a reversion to the mean, we are focused on backing quality management teams in high margin niche industries to create a margin of safety.” said Tyson Smith, a founding partner of F.N.B. Capital Partners, an SBIC fund based north of Pittsburgh in Wexford, PA.

GF Data’s contributors and 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