Market Update Panel:
Valuation and Leverage Trends in M&A
Wednesday, July 20, 2011
9:05 am - 9:55 am
Moderated by
Graeme Frazier
Private Capital Research LLC/GF Data Resources LLC
Panelists:
Stephen Burt, Duff & Phelps
David Magdol, Main Street Capital
Brian Boyle, McGladrey Capital Markets
This panel presentation will discuss the current state of the markets, and what's to come, as we feel the heat rising as market momentum increases. Industry Experts from Senior Lending, Mezzanine Debt, Private Equity and Investment Banking give their perspective, along with the latest market data.
Graeme Frazier, an active member and board member of the AM&AA, is a great example of the high caliber attendees that will be at the conference. He will be presenting with a few other market leaders to present a current market update for the attendees on Tuesday and will also have a sponsor table representing GF Data Resources.
Graeme Frazier is a partner in GF Data Resources and president of Private Capital Research LLC, a consulting firm that provides investment opportunities to middle-market private equity firms and corporate clients. Please see below for the press release from the most recent GF Data report, which he will be using in his presentation. You can also follow this link to see an overview of Private Capital Research LLC and some tombstones of deals they’ve closed and invested in.
GF Data’s First Quarter Report Shows Middle Market Catching Its Breath After End-of-Year Rush
Q1 volume drop-off somewhat more than normal; Valuations remain high
PHILADELPHIA, May XX, 2011 – GF Data’s First Quarter 2011 Report reveals deal volume in the middle market leveled off at a little less than half of the 60 deals reported in the fourth quarter of 2010, an all-time high that was fueled by anticipated (yet never enacted) tax law changes. The 159 private equity firms currently contributing to GF Data reported 29 completed transactions in the first quarter of 2011, indicating a steady return to normalcy in middle market deal activity.
While deal volume slowed, valuation and debt multiples in 1Q were essentially unchanged from multiples in the third and fourth quarters of 2010, indicating that the improving market conditions evident in the second half of last year continued into the early months of 2011. Average pricing held steady at 6.1x trailing twelve months adjusted EBITDA, for the third consecutive quarter.
The GF Data subscriber database now includes information on 1,431 transactions closed between January 1, 2003, and March 31, 2011 with enterprise values of $10 to 250 million. For information on subscribing, or on contributing data as a private equity participant, visit www.gfdataresources.com. The full 1Q Report is available to subscribers only.
“What we are seeing in the data is a recovering M&A market that appears strong enough to run at a sprint, but not strong enough to sprint without getting winded,” said Andrew T. Greenberg, CEO and Co-Founder, GF Data. “After the late 2010 rush, driven in large measure by the widely expected and ultimately deferred federal tax changes, the market was simply out of gas in Q1, which is reflected in the drop off in deal volume. However, we expect the middle market to maintain slow and steady improvement over the remainder of the year as private equity firms continue to find ways to put capital to work, debt availability remains high and sellers continue to take advantage of a stabilized deal market.”
“To put the decrease in deal volume in perspective, since GF Data began tracking deals in 2003, deal volume has historically declined every year between Q4 and Q1, except for 2005-2006, during the heyday of the private equity boom market,” said B. Graeme Frazier, IV, Principal and Co-Founder of GF Data. “However, what’s really important to note in this quarter’s data is that total and senior debt multiples also held steady from the previous two quarters. In terms of multiples of adjusted EBITDA, total debt remained in the low three’s and senior debt in the low two’s, confirming that debt continues to be available in the middle market, which is a welcome improvement from where we were a just a year ago.”
“There is no doubt that we are in an environment where there is still too much capital chasing too few deals” said Steven Dresner, President of Dresner Partners, a middle market investment bank. “The attention received by targets from prospective buyers boasting scale and a growing, highly profitable operation has never been greater. For owners of niche leaders, there is clearly a window of opportunity for a liquidity event right now.”
Additional Data Highlights:
High-level valuation and volume data for the past five quarters follows. GF Data Resources’ reports provide data contributors and subscribers with more detail on valuation, capital structure, leverage and key deal term trends.
All Transactions | 1Q 10 | 2Q 10 | 3Q 10 | 4Q 10 | 1Q 11 |
# of Deals | 19 | 31 | 42 | 60 | 29 |
TEV/EBITDA | 5.2x | 5.5x | 6.1x | 6.1x | 6.1x |
· The “size premium” discussed in recent GF Data Reports accorded to larger deals has never been higher than it was this past quarter. Valuations averaged 5.4x at $10-50 million of TEV, 7.2x at $50-100 million and 8.5x at $100-250 million.
· The “quality premium” accorded to better financial performers (as measured by EBITDA margin and revenue growth) fell off. However, above-average performers accounted for 72% of completed deals in 1Q, compared to 54% in 2010. Market conditions do not suggest a “flight to quality” to the same extent seen in the first half of 2009, but this predominance of deals with above-average firms may be another sign of a market catching its breath.
· Equity contribution as a percentage of overall capital structure has stabilized in the low 50s – 51.8% for the quarter. Average equity had soared from about 40 percent in 2007 to the high 50s by the end of 2009.
· While sub debt levels and coupons have remained steady, pricing for junior capital has risen slightly over the past year. All-in pricing on sub debt deals dating back to the beginning of 2010 is now 16.7% on all reported transactions and 18.3% on deals featuring warrants.
About GF Data Resources
GF Data Resources collects, analyzes and reports on middle market private equity sponsored M&A transactions with enterprise values of $10 to 250 million. Contributors and subscribers have exclusive access to detailed quarterly reports including extensive valuation and leverage data, breakdown by NAICS code through GFDR’s searchable online utility, and a new key deal terms quarterly report. The data provides private equity firms and other users more reliable external information to use in valuing and assessing M&A transactions. Transaction information is collected from private equity groups on a blind and confidential basis. Data contributors and paid subscribers receive two products -- high-level valuation and leverage data in electronically delivered quarterly reports, and continuous access through the web site to detailed valuation data organized by NAICS industry code.
For information on subscribing, or on contributing data as a private equity participant, visit our redesigned website at www.gfdataresources.com. Data summaries and commentaries by GF Data CEO Andy Greenberg also are available at Private Equity Professional Digest’s web site, www.pepdigest.com.
Contact:
Jen Dowd
BackBay Communications
212-209-3844 begin_of_the_skype_highlighting 212-209-3844 end_of_the_skype_highlighting
jen.dowd@backbaycommunications.com
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