Global PE

2017
Deal Multiples
Part I Report
 Credits & Contact
PitchBook Data, Inc.
JOHN GABBERT Founder, CEO
ADLEY BOWDEN Vice President,
Market Development & Analysis

Content
DYL AN E . COX Analyst
GARRET T JAMES BL ACK Publisher
BRYAN HANSON Data Analyst
J ENNIFER SAM Senior Graphic Designer

Contents Contact PitchBook

pitchbook.com

RESE ARCH
reports@pitchbook.com

EDITORIAL
Introduction 3 editorial@pitchbook.com

Survey Population & Market Sentiment 4-5 SALES

sales@pitchbook.com

Investment Multiples 6
Revenue Change 7
Debt & Equity Levels 8 COPYRIGHT 2017 by PitchBook Data,
Inc. All rights reserved. No part of this
publication may be reproduced in any
Fees 9 form or by any meansgraphic, electronic,
or mechanical, including photocopying,
recording, taping, and information storage
Closing Times & Earnouts 10 and retrieval systemswithout the express
written permission of PitchBook Data, Inc.
Contents are based on information from
sources believed to be reliable, but accuracy
and completeness cannot be guaranteed.
Nothing herein should be construed as any
past, current or future recommendation to
buy or sell any security or an offer to sell, or
a solicitation of an offer to buy any security.
This material does not purport to contain
all of the information that a prospective
investor may wish to consider and is not to
be relied upon as such or used in substitution
for the exercise of independent judgment.

The PitchBook Platform

The data in this report comes from the PitchBook Platformour data software for
VC, PE and M&A. Contact sales@pitchbook.com to request a free trial.

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P I TC H B O O K 2017 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: PA R T I
Introduction
Key takeaways

69% of respondents believe current multiples still allow for typical private
equity returns.

The use of monitoring fees is becoming more infrequent in the PE industry. Look up a company.
Just 17% of transactions included monitoring fees in 2016.
And its cap table.
Leverage on PE deals remains lowjust 50% of enterprise value in the first
two months of 2017.
And its investors.
The median EV/EBITDA multiple hit 7.5x through the end of February 2017. And its EBITDA
multiples.
Each quarter, we survey PE investors to get an inside look at deal terms, And its board
multiples and investor sentiment. In this edition, which normally would have
included only those transactions completed in 4Q 2016, we decided to extend
members.
our scope, encompassing deals completed in the first two months of 2017 to
make the datasets timelier and ultimately more useful. In seconds.
Our most recent data shows that investor confidence is extremely high, but debt
usage remains low. Meanwhile, pricing pressures are showing signs of softening
and closing times have lengthened considerably. In the following pages, well
also explore trends surrounding monitoring fees, earnout provisions and target The PitchBook Platform
company performance. has the data you need
We hope this report is useful in your practice. As always, feel free to send any to close your next deal.
questions or comments to reports@pitchbook.com.

Learn more at
pitchbook.com

DYL AN E . COX

Analyst

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P I TC H B O O K 2017 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: PA R T I
Survey Population & Market
Sentiment
Responses (#) by timeframe This survey, which includes deals
completed between October 2016 and
February 2017, includes a broad range
of PE investments. Of the 81 deals for
which responses were completed, 59%
were completed in 4Q 2016, compared
with 41% completed in January or
February of this year. About a third
of the deals (31%) took place in the
41% B2C sector, with slightly fewer (29%)
1Q 2017* in B2B, followed by a sizable share
(15%) in the IT sector. While not all
4Q 2016 survey respondents indicated the
59% type of deal, at least 48 of the 81 were
platform buyouts, whereas at least 22
were considered add-ons.

With M&A multiples as high as they

have been in the last year, weve shed
doubt on the probability of future
PE returns being as high as they
have been in the past. Dealmakers,
however, remain confident in their own
Source: PitchBook. *Note: a handful of respondents failed to indicate the respective quarter in
abilities. Nearly seven out of 10 survey
which the transaction took place, but as they then filled in subsequent responses, those answers
were assigned to the 1Q 2017 timeframe given when the survey was distributed. respondents believe current prices still
allow for typical PE returns. However,

Responses (#) indicating sector of target company Responses (#) indicating type of transaction

60

B2B
Source: PitchBook
50 48
3.7%
B2C
14.8%
29.6%
Energy 40

8.6% Financial Services

30

7.4% Healthcare 22
20
4.9% Information
30.7% Technology
Materials & Resources 10

Source: PitchBook
0
Add-ons Platform Buyout

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P I TC H B O O K 2017 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: PA R T I
we should point out that our survey
population hasnt seen quite the same
multiple expansion as that observed in
the broader M&A marketplace in the
last few years. Even so, the response
should be a welcome sign for the
industry, especially given that some
managers are modeling exits at lower
multiples as they underwrite deals.
Additionally, and for the first time, we
asked managers about the causes of
cancelling or renegotiating deals. Of
those respondents that did have a
cancelled or renegotiated transaction
in the last two quarters, 38% cited
the discovery of adverse information
through diligence as the primary
driver. Though we cant make historical
comparisons, the figure is significant.
Diligence discovery is almost twice
as likely as any other factor to be the
source of a broken deal.

In your opinion, are current deal multiples within a range that allows
for typical PE fund returns?
This report
Source: PitchBook
sums up the
1%
big trends.
9%

30%
Dig into the
details on the
PitchBook
Platform.
60%

Find out more

Yes, very much so Yes No Not at all at pitchbook.com

Causes of cancelling or renegotiating deals

Could not meet

nancing contingencies
13%
18%
Discovery of adverse
information through 9%
diligence

Seller received another

oer

22%
Negative change in 38%
market fundamentals

Other
Source: PitchBook

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P I TC H B O O K 2017 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: PA R T I
Investment Multiples
Combining data from both our Median EV/EBITDA buyout multiples
survey and the PitchBook Platform,
we observed a softening in prices in 8x
the final quarter of 2016. Median EV/ 7x
EBITDA multiples dropped to 6.3x
6x
and median revenue multiples fell to
just 1.1x. The ebb in pricing toward 5x
the end of last year is inconsistent
4x
with what we saw in our larger M&A
datasets, where the median EV/ 3x
EBITDA jumped slightly from 9.5x to 2x
9.8x in 4Q 2016. The disparity in the
sheer level of pricing is mostly due
1x
to the higher proportion of middle- 0x
market deals in our survey population, 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q*
but the reversal in trends suggests that
2012 2013 2014 2015 2016 2017
survey participants have had better Source: PitchBook
success than most in terms of sourcing *As of 2/28/2017

and closing deals at better valuations.

Perhaps these middle-market deals are
not seeing the same pricing pressures
as larger counterparts, which see more
interest from institutional capital and Median revenue multiples by transaction size bucket
corporate acquirers alike. Moreover,
our survey population is likelier to 3.5x All $0-$25M $25M-$250M $250M+
invest in lower-middle-market deals
that trade at smaller multiples. 3.0x

When looking at price levels in the first 2.5x

quarter of this year, the story is quite
different. The median revenue multiple 2.0x
softened for the second quarter in
a row to 1.1x, while the median EV/
1.5x
1.1x
EBITDA multiple skyrocketed to 7.5x
1.0x
a rare divergence for the industry.
This widened disparity, then, could 0.5x
be due to PE firms buying more low-
margin companies in the last quarter. 0.0x
Examples include increased purchases 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q*
of struggling oil & gas producers
2012 2013 2014 2015 2016 2017
now that crude prices have begun to
Source: PitchBook
stabilize, or increased interest in low- *As of 2/28/2017. Note: we excluded revenue multiples broken out by size buckets in 1Q 2017 as
margin raw materials providers and sample sizes were insufficiently robust.

construction firms in anticipation of

new federal infrastructure spending in
the US.

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P I TC H B O O K 2017 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: PA R T I
Revenue Change
Revenue change 12 months prior to deal On top of information about deal
multiples, we ask investors about
100%
the trailing 12-month (TTM) revenue
change at the acquired company, as
80%
well as the respondents anticipated
revenue changes in the 12 months
60%
immediately following a deal. Overall,
the percentage of acquired companies
40% which show revenue growth in the
year prior to acquisition continues
20% to dwindle from a high of 83% in 1Q
2014 to just 63% three years later. This
0% trend reflects the greater availability
3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q* of healthy leveraged buyout targets
2012 2013 2014 2015 2016 2017 in the years prior to the most recent
Decreased > 10% Decreased < 10% Unchanged buyout boom.
Increased < 10% Increased > 10%
Source: PitchBook
Compared to the last year, however,
*As of 2/28/2017 newly acquired portfolio companies
remained relatively healthy in the
last two quarters. 42% of companies
Anticipated revenue change 12 months following deal
acquired in 4Q 2016 reported TTM
100% revenue increases greater than
90% 10%, the highest since 1Q 2015.
80% Further, fewer firms acquired in
70% the last two quarters had severe
TTM revenue decreases. Just 3% of
60%
companies bought in 4Q 2016 and
50%
0% of acquisitions in 1Q 2017 had TTM
40%
revenue decreases of greater than 10%,
30%
the lowest figure in the last three and a
20%
half years.
10%
0% When it comes to predicting revenue
3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q* changes at these recently acquired
companies, PE managers remain
2012 2013 2014 2015 2016 2017
as optimistic as ever. Exactly zero
Decreased > 10% Decreased < 10% Unchanged
respondents predicted revenue
Increased < 10% Increased > 10%
Source: PitchBook decreases for portfolio companies
*As of 2/28/2017 acquired in either 4Q 2016 or 1Q 2017
its worth noting this obviously wont
be the eventual case, and speaks more
to current investor mindsets more than
anything else. To be able to close a
deal at this point in the cycle, firms are
counting on underlying performance
improvement rather than solely
multiple expansion or paying down
portfolio company debt.

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P I TC H B O O K 2017 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: PA R T I
Debt &
51% in 3Q and 60% just a few years reports, continually high equity
prior. Financing is readily available contributions and low debt usage will
and rates are still low, but debt put downward pressure on future PE

Equity
packages expressed as a percentage
of purchase price will remain small in
an environment of high valuations and
stagnant earnings.
returns. However, it should be noted
that managers have increasingly
relied on smaller-than-ideal debt
packages at close, while planning

Levels
on subsequent refinancings, which
The same trend is supported by data
could be artificially inflating the
on average equity contributions in our
equity contribution statistic. Even
survey population, which relatively
Debt usage in PE deals remains so, firms must put extra emphasis on
flatlined in 4Q at 51% of EV, then
historically low. Median debt operational improvements and organic
ticked up in 1Q 2017 to 53% of EV.
usage was just 48% of EV for deals value creationin addition to sourcing
This marks four consecutive quarters
completed in 4Q 2016 and 50% for relatively cheaper dealsto maintain
with average equity contributions
deals completed in 1Q 2017, down from the returns that many of their limited
above 50%. As discussed in previous
partners have come to expect.

Median debt levels Average debt levels by EV (4Q 2016-1Q* 2017)

75% 60%
Source: PitchBook. *As of 2/28/2017 Source: PitchBook
*Data from Global PE Deal Multiples Survey *As of 2/28/2017 52%
70%
combined with PitchBook Platform Data
50%
65% 45%
43%

60% 40%
35%
55%
30%
50%
50%
48%
45% 20%

40%
10%
35%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q*
0%
2012 2013 2014 2015 2016 2017
All $0-$25M $25M-$250M $250M+

Average debt-to-equity breakdown

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 3Q 4Q 1Q*
2012 2013 2014 2015 2016 2017
Equity Senior Debt Non-Senior Debt Source: PitchBook
*As of 2/28/2017
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P I TC H B O O K 2017 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: PA R T I
Fees
fees. In addition, the SEC has cracked to a median of 3.0% of deal size, up
down on accelerated monitoring fees from 2.3% the year prior. Due to the
recently, as showcased by Blackstones intensified and well-documented
$39 million settlement over the matter trends of economic uncertainty, lofty
in 2015. M&A pricing and stagnant portfolio
company earnings, PE firms examined
Conversely, transaction feesdefined
Generally, the industry is moving each deal with extra scrutiny, more
here as legal, advisory, accounting
toward more transparency in regards often employing specialty diligence
or due diligence fees specifically
to fees and manager compensation. firms and advisors to ensure quality
related to the transaction and paid
Last year, however, we saw an increase before deploying capital.
to a third party by the company
in the size of fees associated with PE being acquiredincreased last year
deals. Monitoring feesdefined here as
fees charged to the portfolio company
by the general partner for its advisory
and management servicesincreased Proportion of transactions with fees
slightly in 2016, to 3.0% of EBITDA. We 100%
attribute this increase to the dwindling Transaction Fees
90%
quality of acquisition targets, as lower
EBITDAs will incentivize higher fees as 80%
79%
a percentage of earnings. 70% 76%
Despite the uptick in fees as 60%
a percentage of earnings, the 50%
percentage of deals that have
40%
monitoring fees built into them
dropped in both 4Q 2016 and 1Q 2017, 30% 25%
to 25% and 17%, respectively. Due to 20%
the growth in co-investment popularity 17%
10%
and subsequent direct involvement of Monitoring Fees
LPs in portfolio companies, there has 0%
been heightened pressure to do away 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q*
with, or at least lessen, monitoring 2012 2013 2014 2015 2016 2017
Source: PitchBook
*As of 2/28/2017

Median monitoring fee as % of EBITDA Median transaction fee as % of deal value

6% 4%

5%
3%
4%

3% 2%

2%
1%
1%
5.0%

4.1%

2.3%

3.0%

2.3%

2.0%

2.0%

2.3%

3.0%

2.5%

0% 0%
2013 2014 2015 2016 2012 2013 2014 2015 2016 2017*
Source: PitchBook Source: PitchBook
*As of 2/28/2017

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P I TC H B O O K 2017 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: PA R T I
Closing Times & Earnouts
Though median time to close for The percentage of deals to include well watch to see if this figure rises
PE transactions in our survey has earnout provisions or seller financing in the next few quarters, which could
always hovered around 12 weeks, increased in both 4Q 2016 and 1Q 2017, reflect increasing unpredictability in
the percentage of deals that closed to 39% and 43% respectively. Though acquired company performance.
in nine or fewer weeks had crept up its still around the historical mean,
from 12% in 1Q 2015 to a high of 47%
in 4Q 2016. We attributed this rise to
increased competition from strategic
Transactions (#) by weeks to close
and financial sponsors alike. For
certain assets, corporate competitors 100%
could complete all-cash deals in 90%
just a few days, while buyout shops 80%
became willing to waive financing
70%
contingencies and rely on refinancing
60%
after close.
50%
Its puzzling, then, that median time to 40%
close shot up to 18.5 weeks in 1Q 2017,
30%
while 64% of deals took longer than 15
20%
weeks to closeboth the highest in the
surveys history. The most likely culprit 10%
here is the US presidential election, 0%
the outcome of which was certainly 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q*
a surprise to many investors. With so 2012 2013 2014 2015 2016 2017
much in limbo during the transition <5 wks 5-9 wks 10-14 wks 15-20 wks >20 wks
period, many deals that were in play in Source: PitchBook
4Q could have had diligence periods *As of 2/28/2017

extended into the first part of the new

year.

Deals with earnout provisions or seller financing (#) Weeks to close

50% 45.0
Average
45% 43% 40.0
39% 35.5
40% 35.0
35%
30.0
30%
25.0 26.4
25%
20.0 Median 18.5
20%
15.0
15%
10.0 12.0
10%

5% 5.0

0% 0.0
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q* 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
Source: 4Q 1Q*
PitchBook

2013 2014 2015 2016 2017 2013 2014 2015 2016 17

Source: PitchBook Source: PitchBook
*As of 2/28/2017 *As of 2/28/2017

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P I TC H B O O K 2017 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: PA R T I
 We do
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private comps,
valuations,
market trends,
growth metrics.

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