21 Aug Interesting Developments in M&A Marketplace!
By all accounts, debt financing seems to be amply available and rising in the amount extended for business acquisitions in the United States. Debt financing – for deals completed in the $10 to $250 million transaction value range – rose to 57% in the second quarter of 2014. This is for senior and sub-debt (combined). In recent years, it’s been 47% to 50%. Total debt loaned as a multiple of EBITDA – for all transactions in the $10 to $250 million range – averaged 3.9x, up from an average of 3.4x in recent years (2011 through 2013). The balance of any purchase price paid, then, is provided by equity and any seller financing offered.
This data is provided by GF Data Research, which reports on U.S. transactions completed by participating private equity groups.
The average transaction value paid during the quarter was 6.4x EBITDA. For transaction values between $10 and $25 million, the average value was 5.4x. Values for larger companies – with transaction values in the $50 to $250 million range – were 7.6x EBITDA. The difference is referred to as the “size premium.”
Companies with above-average growth and profit margins sold for an average 20% higher price, i.e., multiples of EBITDA. One could assume that companies with below-average growth and margins went for, on average, a 20% discount.
Values vary by industry, of course. During the first six months of 2014, companies in the health care space sold for the highest average multiple of EBITDA: 7.6x. Manufacturers sold for 5.9x on average across the entire size range mentioned above. Technology: 6.6x.
Transaction volumes overall remain well below the pace of 2012, when many deals were completed ahead of the tax rate increases that went into effect in 2013. Surprisingly, the 2014 pace is below that of 2010 and 2011 as well, but on pace to surpass the number of transactions (in the above-referenced size range) estimated to have been completed in 2013.
Buyers are plentiful and fairly aggressive. There’s ample equity and debt capital to get deals done. Valuations are up. It’s a good time to sell. Still, a modest number of good companies are choosing to exit at this time. High demand and low supply means it’s a seller’s market.