PE DEAL MULTIPLES
REPORT
2016: II
SPONSORED BY
MEDIAN EV/EBITDA
MULTIPLES AT SUB$25M EVs HIT 6.1X
DEBT USAGE
REMAINS FLAT
Page 7
Page 5
TRANSACTION FEES
FALL FROM
RECENT HIGHS
Page 8
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Content
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Contents
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RESE ARCH
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Introduction
Investment Multiples
EDITORIAL
editorial@pitchbook.com
SALES
sales@pitchbook.com
Revenue Change
Fees
Activity Indicators
10
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P I TC H B O O K 201 6 G LO B A L P E D E A L M U LT I P L E S R E P O R T: I I
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Introduction
Through the second quarter of this year, aggregate valuations across PE have
remained at a slightly subdued level, yet weve seen considerable movement
in multiples across different enterprise-value size buckets. As managers have fled
to the lower middle market and below to find better relative value in recent
quarters, it seems competition has even increased at the lower depth of the value
spectrum, with valuations there moving considerably higher.
Revenues remain stagnant, and with PE managers in many cases operating in a
world that moves more closely with the broader economy, we continue to expect
this trend to remain the same. Subsequently, debt levels remain lower than the
historical norm. Managers have been forced to write larger equity checks, yet
this trend has also helped accelerate close times as deals can close without some
of the traditional lending contingencies that can prolong processes.
Over the past few years, the pool of target assets that could see material
growth has shrunk. Managers today are forced to pick apart deals on a case-bycase basis much more than before. While we see datasets that show multiples
remaining stubbornly high, those dont take into account the declining sample
size of closed transactions. Activity is down, and there continues to be an everwidening gap between top-quality deals where buyers are stretching price tags
and the large pool of assets that are trading at significant discounts. At this point
in the cycle, thats how the game gets played and we expect to see the trends
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P I TC H B O O K 201 6 G LO B A L P E D E A L M U LT I P L E S R E P O R T: I I
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Investment
Multiples
Overall transaction multiples during
the second quarter of the year
remained relatively flat, coming in
at 7.50x, only a slight shift upward
from the 7.44x figure recorded in 1Q.
That said, the breakdown between
transactions by enterprise value
showed noticeable movement on a
consecutive basis.
At the sub-$25 million EV range,
survey respondents reported a median
EV-to-EBITDA multiple of 6.13x, nearly
a whole turn higher from what we saw
in 1Q, and the second-highest figure
weve recorded since the inception of
this survey. In previous reports, weve
touched on the pressure put on many
middle-market managers by auction
processes. With that, we began seeing
more managers willing to source
transactions at the lower middle
market and below, as well as an uptick
in the number of niche managers
coming to market to raise smaller
vehicles that would target these lower
deal-size buckets. Yet it appears that
as managers have moved lower down
the value chain, competition and
consequently prices have risen in the
exact place where dealmakers have
looked for relative value, an interesting
trend well look to follow closely in the
coming months.
Deals valued between $25 million
and $250 million also saw multiples
jump significantly over the 1Q figures
recorded in the last iteration of this
report. During the last quarter of
2015, we saw market pressures extend
negotiating periods for many deals
that ultimately ended up closing in
1Q. Naturally, top-tier deals saw their
closing processes move relatively
smoothly during that time period,
and thus 4Q 2015 saw multiples
come in at 8.50x, driven by a skewed
sample population that included
7x
6x
5x
4x
3x
2x
1x
0x
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2012
2013
2014
2015
2016
Source: PitchBook
10x
8x
6x
4x
2x
0x
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2012
2013
2014
2015
2016
Source: PitchBook
20x
15x
10x
5x
0x
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2012
2013
2014
2015
2016
Source: PitchBook
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P I TC H B O O K 201 6 G LO B A L P E D E A L M U LT I P L E S R E P O R T: I I
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Revenue change
The percentage of companies for
which revenue was unchanged in the
TTM prior to close more than doubled
to 21% quarter over quarter (QoQ).
That is, more companies are chugging
along without much growth.
Over the same timeframe, the
percentage of deals for which the
100%
80%
60%
40%
20%
0%
3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2012
2013
Decreased > 10%
Increased < 10%
2014
Decreased < 10%
Increased > 10%
2015
2016
Unchanged
Source: PitchBook
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2012
2013
Decrease > 10%
Increase < 10%
2014
Decrease < 10%
Increase > 10%
2015
2016
Unchanged
Source: PitchBook
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P I TC H B O O K 201 6 G LO B A L P E D E A L M U LT I P L E S R E P O R T: I I
SPONSOR
75%
65%
Source: PitchBook
70%
65%
60%
60%
55%
55%
50% 50%
50%
54%
53%
52%
45%
50%
Source: PitchBook
*Data from Global PE Deal Multiples Survey
combined with PitchBook platform data
40%
35%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2012
2013
2014
2015
48%
45%
2016
All
$0-$25M
$25M-$250M
$250M+
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1Q
2Q
3Q
2012
4Q
1Q
2Q
3Q
4Q
1Q
2013
Equity
Senior Debt
2Q
3Q
4Q
1Q
2014
Non-Senior Debt
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P I TC H B O O K 201 6 G LO B A L P E D E A L M U LT I P L E S R E P O R T: I I
2Q
3Q
2015
4Q
1Q
2Q
2016
Source: PitchBook
SPONSOR
Fees
Median monitoring fees dropped
by half of a percentage point in
2Q 2016 to 2.0% of EBITDA, tied for
the lowest of any quarter since our
survey began. Limited partners have
recently shown a preference toward
working with fewer investors, allowing
them to co-invest more often and
negotiate lower management fees.
With this greater involvement comes
more awareness around monitoring
fees and pressure from LPs to do away
with them completely. 23% of survey
respondents reported to have built in
monitoring fees to deals completed
in the second quarter. Just two years
ago, in 2Q 2014, that number was at
43%. This figure has trended down
ever since, and an increased number
of managers now operate without the
expectation of receiving it.
100%
90%
82%
80%
74%
70%
60%
50%
45%
40%
30%
20%
23%
10%
Transaction Fees
0%
Monitoring Fees
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2012
2013
2014
2015
2016
Source: PitchBook
6%
4%
5%
5.0% 5.0%
4.2%
4%
3.3%
4.5%
3%
4.0%
3.0%
3.0%
2.8%
2.8%
2.5%
3.5%
3.5%
3.0% 3.0% 3.0%
3%
2%
2.5%
2.0%
2%
2.3%
2.3%
2.0%
2.0%
2.0%
2.0% 2.0%
2.0%
1.5%
2.0%
1%
1%
0%
0%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2013
2014
2015
2016
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2013
2014
Source: PitchBook
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P I TC H B O O K 201 6 G LO B A L P E D E A L M U LT I P L E S R E P O R T: I I
2015
2016
Source: PitchBook
SPONSOR
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2012
<5 wks
2013
5-9 wks
2014
10-14 wks
2015
15-20 wks
2016
>20 wks
Source: PitchBook
60%
50%
46%
40%
40%
30%
20%
10%
Source: PitchBook
0%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2012
2013
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P I TC H B O O K 201 6 G LO B A L P E D E A L M U LT I P L E S R E P O R T: I I
2014
2015
2016
SPONSOR
Activity indicators
If your firm receives 100 Confidential Information Memoranda (CIMs)
this year, for what percentage of that 100 will you:
30%
25%
20%
15%
Minimum
Median
15
Maximum
300
Average
30
Standard deviation
48.5
10%
5%
0%
22%
Average of
Indication of
Interest
28%
18%
12%
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P I TC H B O O K 201 6 G LO B A L P E D E A L M U LT I P L E S R E P O R T: I I
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