Deal Multiples & Trends Report - PitchBook

PitchBook

Bet ter Data. Bet ter Decisions.

PitchBook 1Q 2013 Private Equity

Deal Multiples & Trends Report

1Q 2013 Private Equity Deal Multiples & Trends Report

Introduction The Deal Multiples & Trends Report has steadily been gaining traction since PitchBook released the inaugural edition of the report in 3Q 2012, with a record-breaking number of respondents completing the most recent survey for deals executed in 4Q 2012. By integrating data from the survey with verified deal information in the PitchBook Platform, this edition of the report includes deal terms and multiples from 116 transactions in 2012. The full PitchBook Platform currently provides data on 10,499 deals in 2012. One of the key takeaways from this edition of the survey was that the median debt level in private equity (PE) buyouts jumped from 46% in 3Q to 57% in 4Q. Much of this increase can be attributed to the fact that the average deal size also rose in 4Q, and larger deals tend to incorporate higher amounts of debt. The report also shows that PE firms have been focused on acquiring strong performing companies with solid revenue growth, as more than 75% of the businesses acquired in 4Q increased their revenue in the previous 12 months and anticipate doing the same in the year ahead. Another interesting finding was that many PE firms were operating under expedited timelines in 4Q in anticipation of higher tax rates in 2013. To that end, the proportion of deals that closed in less than 10 weeks during 4Q was the highest it had been all year. Here are some of the key statistics for 2012 that will be explored in the report: »» »» »» »»

The median EBITDA multiple for all deals was 6.0x. The median revenue multiple for all deals was 1.2x. The median debt percentage for all deals was 56%. The average time to close a deal was 17 weeks.

We understand that deal terms and multiples are some of the most sensitive and important information to PE professionals. As such, all information provided by survey respondents remains completely anonymous and is not integrated into the PitchBook Platform or any deliverables besides the Deal Multiples & Trends Report. If you are interested in participating in future editions of the survey, please send your contact information to [email protected].

COPYRIGHT © 2013 by PitchBook Data, Inc. All rights reserved. No part of this publication may be reproduced in any form or by any means – graphic, electronic, or mechanical, including photocopying, recording, taping, and information storage and retrieval systems – without 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. [email protected] www.pitchbook.com

1


Investment Multiples Larger deals commanded higher multiples throughout 2012

Nearly two-thirds of deals in 2012 had an EBITDA multiple of 5x or greater

Median EV/EBITDA Multiple by Enterprise Value

EV/EBITDA Multiple Breakdown (2012)

15x 13x

16%

3%

11x

$500M+

34%

$100M-$500M

9x

$50M-$100M

7x

$25M-$50M

0x-2.5x

2Q

3Q 2012

7.5x

4Q Source: PitchBook

Investment Multiples Definition

Source: PitchBook

Investment multiples are calculated by dividing the enterprise value of the portfolio company by either the TTM EBITDA or the TTM revenue at the time of the transaction.

[email protected] www.pitchbook.com

2


Investment Multiples Revenue multiples eclipsed 3x in 4Q for deals of $500M and more

PE firms executed deals across the revenue multiple spectrum in 2012

Median EV/TTM Revenue Multiple by Enterprise Value

EV/TTM Revenue Multiple Breakdown (2012)

3.5x 3.0x 2.5x $500M+

2.0x

24%

27%

>2.0x

$100M-$500M

1.5x

1.5x-2.0x

$50M-$100M

1.0x-1.5x

1.0x

$25M-$50M

16%

$0-$25M

.5x 2Q

3Q

0.5x-1.0x 0x-0.5x

21%

0x 1Q

12%


2012

Source: PitchBook

Companies with 10%+ Revenue Growth are PE Firms’ Preferred Target in 4Q 2012 Revenue Change in 12 Months Prior to Deal 5% 5% 15%

Anticipated Revenue Change in 12 Months Following Deal

Increase(d) more than 10% 40%

Increase(d) less than 10%

5% 15% 45%

No change Decrease(d) less than 10%

35%

Decrease(d) more than 10%

35%

Key Takeaway PE firms focused their attention on investing in businesses with strong revenue growth and stable outlooks in 4Q 2012. More than 75% of the companies acquired in 4Q had increased their revenue in the previous 12 months, and more than three-quarters of respondents anticipated revenue growth in the coming year as well.

[email protected] www.pitchbook.com

3


Debt and Equity Levels After declining throughout the year, leverage spiked in 4Q Average Debt Levels

60%

57%

Deals of $100M and more regularly use higher levels of debt 70%

2012’s Median Debt Levels by Deal Size

60%

61%

55%

51%

50%

50%

50%

52%

55%

53% 49%

40% 30%

45%

46%

20%

40% 1Q

2Q

3Q

4Q

0%

2012 Source: PitchBook

PE investors used roughly equal amounts of equity and senior debt in 2012 deals Average Debt-to-Equity Ratio (2012) 21% 40%

10%

Equity Senior Debt Non-Senior Debt

39% Source: PitchBook

$0-$25M

Lower Market

$25M-$50M

$50M-$100M $100M-$500M

Middle Market

$500M+

Upper Market Source: PitchBook

Key Takeaway The average amount of debt in PE transactions climbed from 46% in 3Q to 57% in 4Q after declining throughout the first three quarters of the year. According to PitchBook’s 2013 Annual Private Equity Breakdown, there was a significant spike in deal-making in 4Q 2012, particularly in large transactions of $1 billion and more. With this in mind, it is not surprising to see a meaningful jump in the average debt level for transactions as well. [email protected] www.pitchbook.com

4


Fees and Closing Times The median monitoring fee hit a yearly high of 5.0% in 4Q 2012

6%

Median Monitoring Fee as % of EBITDA

After rising to 3.0% in 3Q, the median transaction fee reverted to 2.0% in 4Q 4%

Median Transaction Fee as % of Deal Size

5%

3% 4%

2%

3% 2%

1% 1% 0%

0% 1Q

2Q

3Q 2012

4Q

1Q

2Q

The percentage of deals that included transaction fees varied widely by quarter Percent of Transactions with Deal Fees

3Q 2012

Source: PitchBook


Deal timelines contracted significantly in 4Q with investors anticipating higher taxes Percent of Transactions by Weeks to Close

95%

100%

90%

90%

85%

80%

80%

70%

75%

60%

>20 wks

70%

50%

15-20 wks

65%

40%

10-14 wks

60%

30%

5-9 wks

55%

20%