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Like a sprinting racehorse maintaining its stride on the last turn, middle-market M&A kept its pace as 2021 drew to the finish, according to GF Data’s just-released February report. Valuations in the fourth quarter averaged 7.5x, matching the elevated mark for Q3.

GF Data’s 258 active private equity contributors reported on 151 transactions in the quarter meeting our parameters — Total Enterprise Value (TEV) of $10 million to $250 million and TEV/Trailing Twelve Months (TTM) Adjusted EBITDA of 3x to 15x. This outdistanced the 135 transactions reported in Q4 2020 when the market was coming to life after two pandemic-shocked quarters.

“The most notable thing about this market is that there appears to remain some room for pricing to advance,” said Andrew Greenberg, CEO of GF Data. “While valuations held steady in the fourth quarter, average debt loads also increased, dropping average equity shares to about 52 percent. This suggests headroom — particularly on sub-$50-million deals, where the figure is a few points lower.”

“The fourth quarter continued a trend of an unusually high percentage of deals meeting our metrics for “above-average” financial performance,” said B. Graeme Frazier, a co-founder and principal of GF Data. “The selling businesses designated as above-average based on TTM EBITDA margin and revenue growth were valued at a 30 percent premium to others in 2021, continuing an upward trend of the past five years. However, the incidence of deals meeting this standard – almost always 56% to 57% — surged to 66% for the year.”

“The M&A market, in general, continues to be competitive for buyers,” said Justin Hillenbrand, a founding partner and co-CEO of Monomoy Capital Partners. “We look for situations where Monomoy is able to differentiate itself and can add unique value through our operating team’s capabilities. Having recently completed fundraising on Fund IV with over $1.1 billion in commitments, we are thrilled that GF Data has expanded its parameters to include deals with $250 million to $500 million in enterprise value.”

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