The First Quarter Lull: Tacking, Not Veering

by Andy Greenberg, CEO GF Data and
B. Graeme Frazier, IV, GF Data’s Co-Founder and Principal. published PEP Digest

Completed deal activity in the GF Data private equity universe was light by any measure in the first quarter of 2016, according to the data tracking firm’s May 2016 report.

The 200 private equity groups and other deal sponsors that are active contributors reported 42 closed transactions in the $10 million to $250 million Total Enterprise Value (TEV) range. Reported volume was 54 deals in the first quarter of last year and 66 in the fourth quarter of 2016. Total Enterprise Value/Trailing Twelve Months EBITDA averaged 6.7x for the quarter, in line with the 2015 average.

Andy Greenberg, CEO GF Data“Based on interactions with data contributors and other deal professionals, we continue to believe that this downturn represents a fundamentally sound market tacking rather than veering into a lull,” said GF Data CEO Andrew Greenberg. “While financial buyers were extremely active sellers in the accommodating market conditions of the past couple of years, individual and family business owners did not rush for the exits then. We expect to see the remaining unsold inventory buoy deal volume in the balance of this year.”

GF Data provides 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 204 private equity firms, mezzanine groups and other financial sponsors.

B. Graeme Frazier, IV“Probably the defining dynamic in the market right now is valuation multiples surging on add-ons as opposed to platform investments. The spread in favor of add-ons was 0.2x in the first quarter,” said B. Graeme Frazier, IV, GF Data’s Co-Founder and Principal. “This spread continues a reversal of the historical trend, and is a clear sign of both continuing debt availability and a “cost-averaging” frenzy, as larger firms come down market for less-expensive additions to highly priced platforms.”

“While our activity mirrors the GF Data report, we are experiencing an up-turn in owner discussions regarding the sale of their businesses. Buy-side engagements are gaining interest due to increasing competition for good companies,” said Michael Poole, founder of PCE Investment Bankers, a middle market financial services firm based in Winter Park, FL (www.pcecompanies.com).

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.

(c) 2016 Private Equity Professional * Private Equity’s Leading News Magazine * 6-1-16

This entry was posted in PEP Digest. Bookmark the permalink.