GF Data Resources 2Q Middle Market Private Equity Report Shows Highest Deal Volume Since 2008

PHILADELPHIA--(BUSINESS WIRE)--GF Data Resources’ 2Q Private Equity Report indicates completed deal volume in the middle market meaningfully accelerated in 2Q 2010, evidencing signs of recovery in the M&A market. The data, provided to GF Data Resources by 146 private equity firms reporting on transactions valued between $10 and $250 million, includes 26 transactions completed in the second quarter of 2010, the highest deal volume recorded since Q4 2008, and a significant increase from the 16 deals completed in the first quarter of 2010.

“We are seeing some positive trends towards recovery in the second quarter data”

Though it is still below the peak volume of about 40 deals per quarter throughout 2006 and the first half of 2007, increased deal volume and resurgent multiples in 2Q reflect improving conditions in the deal environment. Average pricing for transactions in 2Q showed a modest but pronounced uptick in valuation multiples with an average of 5.6x trailing twelve months adjusted EBITDA, compared to 5.2x in the prior quarter.

The GF Data Resources database draws from data provided by 154 participating private equity firms on 1,191 transactions closed between January 1, 2003, and June 30, 2010. As of the 2Q report, 146 of these firms are active participants. For information on subscribing, or on contributing data as a private equity participant, visit www.gfdataresources.com. The full 2Q Report is available to subscribers only.

“We are seeing some positive trends towards recovery in the second quarter data,” said Andrew T. Greenberg, CEO and Co-Founder, GF Data Resources, LLC. “However, we are once again seeing a three to four month lag between what deal practitioners and buyers are experiencing in the marketplace and the reflection of those trends in the completed deal data. We expect deal activity in the second half of the year to bear even more of the signs of recovery in the general economy, the capital markets and individual company performance.”

“Our data confirms that today’s M&A market continues to remain bifurcated in terms of quality and transaction size,” said B. Graeme Frazier, IV, Principal and Co-Founder of GF Data Resources. “The discrepancy between valuations for high quality companies and lower quality businesses has never been greater than it was in the first half of 2010. That in turn suggests that financial buyers are putting a premium on well-performing companies while, at the same time, smaller transactions are commanding lower purchase multiples.”

“The uptick in activity is a quantitative manifestation of several key trends: improved year-over-year company performance, more accommodating debt markets and substantial pent up demand within private equity groups to both aggressively deploy dry powder in new deals as well as generate liquidity for their limited partner investors from sales of existing portfolio companies,” said Mark Jones, Partner, River Associates Investments, LLC. “These drivers have had the effect of coaxing into the M&A markets numerous new sellers along with those sellers whose process was ‘shelved’ in late 2008 or 2009.”

Data Highlights:

High-level valuation and volume data for the past six quarters follows. GF Data Resources’ reports provide data contributors and subscribers with similar detail on transactions, capital structures, leverage and key deal term trends.

All Transactions

1Q 09

2Q 09

3Q 09

4Q 09

1Q 10

2Q 10

# of Deals

TEV/EBITDA

6.2x

6.7x

5.1x

5.2x

5.6x

Completed deal volume continued to accelerate, with 146 active private equity contributors reporting 26 completed transactions in 2Q; still well off of the 40-plus deals closed in 2007, but still the most productive quarter since 4Q 2008.
Total enterprise value/adjusted EBITDA averaged 5.6x. This is lifted out of the trough of aggregate multiples in the “low fives” that had prevailed since better but not great financial performers – B properties – reentered the market in mid-2009, accepted greater discounts in pricing and pulled down the average.
Above-average financial performers were valued in 2Q at 107% the valuation for lesser-performers, the highest premium in any quarter in the past four years.
The recovery in valuation is almost entirely concentrated in businesses valued at greater than $25-million. The average multiple at $10-25 million for the quarter was 4.8x. Between $25 and $100 million, the average was 6.3x. At $100-250 million, it was 6.9x.
Over the period for which GF Data has been collecting information, dating back to the beginning of 2003, the difference between the valuation of smaller businesses and larger ones has never been greater than it was in the first half of 2010.

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. Or, follow us on Twitter http://twitter.com/gfdata or LinkedIn www.linkedin.com/companies/1098212 as we provide updates and newsworthy notes on lower middle-market private transaction activity.