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For maximum leveraged transactions, total debt averaged 4.3x in the first half of 2021, unchanged from last year.

Private deal activity in the second quarter continued to return to congenial pre-pandemic conditions with a handful of notable permutations, according to GF Data’s just — released report.

The data tracking firm’s 243 active private equity contributors completed 81 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. Valuations averaged 7.2x, total debt averaged 3.9x, and senior debt averaged 2.7x.

“These headline numbers could have been plucked out of any period in 2018 or 2019,” said GF Data CEO Andrew Greenberg. “Valuations in aggregate have rebounded after three quarters in which pricing averaged in the high sixes.”

“The uptick reflects continued stagnation for distressed or out-of-favor businesses, while more favored sellers are capturing outsized results,” added Mr. Greenberg. “The “quality premium” — our measure of the reward in valuation applied to firms with attractive sales growth and margins — was 33 percent in the first half. This compares to an average of 15 percent across the entire GF Data universe, dating back to 2003.”

One aspect in which the market may be returning to pre-COVID form is in typical debt structure, said B. Graeme Frazier, IV, GF Data’s co-founder and principal. “In the prior two quarters, subordinated debt compressed to about half a turn of average capital structure. In the second quarter, subordinated debt accounts for .8x of the typical capital structure, more in line with past experience.”

“Our leverage report also provides an interesting referendum on perceived risk,” added Mr. Frazier. “For deals done with debt at or close to maximum leverage, total debt averaged 4.3x in the first half of 2021, no change from last year. Total debt jumped from 3.3x to 3.6x, though, on deals with debt at less than the maximum available. In other words, borrowers believing their capital structure is being constrained by their own judgment rather than market tolerance are choosing to be that much more aggressive in their capitalization decisions.”

“Despite operating through a continued pandemic, private equity LBO activity in the lower-middle market remains robust,” said Tim Clifford, the president and CEO of Abacus Finance Group. “While deal activity remains strong, the continued supply/demand imbalance resulting from the capital overhang in both debt and equity is ultimately driving up leverage and purchase price multiples in our market.”

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

Data contributors and other subscribers receive five 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; (4) quarterly industry drilldown reports; and (5) continuous access, through GF Data’s secure website, to detailed valuation data organized by NAICS code.