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PE DEAL MULTIPLES + TRENDSR E P O R T
G L O B A L
2Q 2015
DEBT & EQUITY LEVELS
Page 8
FEES & CLOSING TIMES
Page 9
REVENUE CHANGE Page 5
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CHANGE YOUR EXPERIENCE OF FINANCIAL PRINTING
CONTENTSIntroduction
Investment Multiples
Revenue Change
Debt & Equity Levels
Fees & Closing Times
4
5
7
8
9
COPYRIGHT © 2015 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.
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RESEARCH
EDITORIAL
SALES
At PNC Business Credit, we’ve demonstrated a long-term track record
of reliability: more than 600 done deals in the last three years, and nearly $30 billion in commitments under management. Hundreds of private equity groups turn to PNC Business Credit to fuel growth. Many of them return to us, time and time again, in all phases of the business cycle, to secure the capital they need. From acquisitions to turnarounds, we’re committed to getting the deal done.
The PNC Financial Services Group, Inc. is one of the largest, best capitalized and best regarded financial services companies in the country with more than $300 billion in assets and more than 50,000 employees. PNC offers solutions to businesses throughout the U.S. with expanded reach in Canada and the U.K. For more than 160 years, PNC has navigated a steady course while growing in size and service.
3 PITCHBOOK 2Q 2015 GLOBAL
PE DEAL MULTIPLES & TRENDS
IntroductionToday’s dealmaking environment is a dynamic one. High multiples across the board have proved
a headache for private equity investors, but like any investor with a mandate to invest, they’ve spent the last several quarters looking for ways to put their money to use despite the headwinds. At the same time, PE firms have also come under scrutiny from the government and their own limited partners on monitoring and transaction fees, both of which are declining in usage. That one-two combination is making it tricky for investors to make as much money as they have in the past. Co-sponsored by PNC Business Credit and Toppan Vite, our PE Deal Multiples & Trends Report, based on quarterly surveys filled out by dealmakers around the world, hopes to shed light on the details of the current marketplace.
One of the more interesting trends that came out
of our survey concerns median debt levels, covered in more detail on page 8. For the second straight quarter, the median debt component was below 50%, and in fact hit its lowest point (47%) since we began our survey over three years ago. Since hitting a 62% median in 2Q 2014, debt levels have precipitously declined over the last three periods. While it’s true that interest rates remain subdued, it’s also not surprising that debt usage has pared back some. We’ve heard anecdotes of lenders and borrowers alike beginning to scale back leverage ahead of an inevitable rate hike. At the same time, respondents continue to favor senior debt over mezzanine and other non-senior debt instruments.
If you are interested in participating in future editions of the survey, please contact us at [email protected].
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Investment MultiplesMedian EV/EBITDA Multiples by Enterprise Value
Median EV/Revenue Multiple by Enterprise Value
EV/EBITDA Multiple Breakdown
EV/Revenue Multiple Breakdown
Teasing out definitive trends among quarterly fluctuations demands a fair amount of caution.
Since 2012 there has certainly been a gradual increase in the proportion of EV/EBITDA multiples exceeding 7.5x. The swell is slight, pointing to an upward pressure of sustained liquidity and competition tempered by investor caution. Multiples by EV have by and large either declined at the upper end or essentially steadied, indicating PE firms’ shift in focus to the
Source: PitchBook
Source: PitchBook
Source: PitchBook
Source: PitchBook
middle market and, even within that section of the market, continued caution.
The latest EV-to-revenue reading tells a similar story. Just about 30% of deals in 1Q 2015 had EV/revenue multiples exceeding 2x, with 20% at the opposite end, in the 0x to 0.5x range. Essentially, PE firms are still finding deals even in a heated, competitive market and exhibiting a fair amount of deliberation while doing so.
Investment Multiples Definition
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.
0x
2x
4x
6x
8x
10x
12x
14x
16x
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2012 2013 2014 2015
All $0-$25M $25M-$250M $250M+
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2012 2013 2014 2015
All $0-$25M $25M-$250M $250M+ 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2012 2013 2014 2015
0x-0.5x 0.5x-1x 1x-1.5x 1.5x-2x >2x
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2012 2013 2014 2015
<0x 0x-2.5x 2.5x-5x 5x-7.5x >7.5x
5 PITCHBOOK 2Q 2015 GLOBAL
PE DEAL MULTIPLES & TRENDS
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Revenue Change
One of the consequences of the current levels of competition for quality deals is that PE firms
have been increasingly targeting companies with fairly healthy metrics. The proportion of companies with revenue increases greater than 10% stayed substantial in 1Q. That may explain why the number of those predicting considerable revenue changes post-deal slid yet again between 4Q 2014 and 1Q 2015. Even if operational focus is a priority, there’s only so
much value that can be added quickly by experienced managers, so respondents appear to be adopting a longer-term perspective. It should be noted that the majority are still quite optimistic, with over 80% anticipating positive changes. EV/revenue multiples by prior and anticipated revenue change suggest a moderate, positive outlook as well, with a median of 1.2x in EV/revenue multiples for investors predicting no change in the next 12 months’ revenue.
Revenue Change 12 Months Prior to DealAnticipated Revenue Change 12 Months Following Deal
Source: PitchBookSource: PitchBook
EV/Revenue Multiple by TTM Revenue Change (2013-1Q 2015)
EV/Revenue Multiple by Anticipated NTM Revenue Change (2013-1Q 2015)
Source: PitchBook
Source: PitchBook
The charts above show the average and median EV/revenue multiples based on the company’s revenue change over the 12 months prior to acquisition and the investor’s expectation for the company’s revenue change in the 12 months following acquisition.
0%10%20%30%40%50%60%70%80%90%
100%
3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2012 2013 2014 2015
Decreased > 10% Decreased < 10% UnchangedIncreased < 10% Increased > 10%
0%10%20%30%40%50%60%70%80%90%
100%
3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2012 2013 2014 2015
Decreased > 10% Decreased < 10% UnchangedIncreased < 10% Increased > 10%
0.8x
1.4x
0.7x
0.8x
2.9x
1.0x
Decreased
Flat
Increased
Average Median
1.0x
1.2x
1.2x
1.5x
2.8x
2.7x
Decrease
Flat
Increase
Average Median
7 PITCHBOOK 2Q 2015 GLOBAL
PE DEAL MULTIPLES & TRENDS
CHANGE YOUR EXPERIENCE OF FINANCIAL PRINTING
Debt & Equity Levels
Even with rumblings that historically low interest rates may finally tick up by the end of
the year, debt remains cheap. At the same time, regulators remain wary and PE firms have plenty of capital to dispense as deal sourcing continues to be difficult. These factors have combined to produce the sustained high usage of senior debt coupled with yet another quarterly decline in median debt percentages. Furthermore, debt remains more highly utilized at the upper and lower end of EV, suggesting
buyers are opportunistically picking and choosing where best to leverage. In short, these numbers again indicate caution, which, coupled with the decline in U.S. PE numbers in 1Q as well as the heated nature of the market, makes plenty of sense. Looking forward, it’s hard to see how this will change over the rest of the year, as many of the factors will remain unchanged and the eventual increase in U.S. interest rates will have long been anticipated, and should be slight in any event.
Median Debt Levels Median Debt Levels by Enterprise Value (2Q ’12 - 1Q ’15)
Source: PitchBookSource: PitchBook
Average Debt-to-Equity Breakdown
Note: PitchBook receives varying levels of detail regarding the debt used in deals. Some of the charts on this page utilize a subset of our data that contains additional details. In addition, some charts are displaying median debt levels while others show average debt levels. This explains any discrepancies that may be noticed between the charts.
Source: PitchBook
50%
53%
50%
61%60%
59%
55%
63%
55%
62%
56%
49%
47%45%
50%
55%
60%
65%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2012 2013 2014 2015
56%
58%
53%
58%
45%
50%
55%
60%
65%
All $0-$25M $25M-$250M $250M+
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q
2012
2013
2014
15
Equity Senior Debt Non-Senior Debt
8 PITCHBOOK 2Q 2015 GLOBAL
PE DEAL MULTIPLES & TRENDS
CHANGE YOUR EXPERIENCE OF FINANCIAL PRINTING
Fees & Closing TimesFees have been a sticky issue for PE firms, in large part because of increased scrutiny by the
government and by limited partners. Small surprise, then, that fee charges have dropped considerably. The median sizes for both transaction and monitoring fees have declined over the last four quarters, and the percentage of deals that include fees has decreased significantly over the last three years. According to survey results, only half of 1Q PE deals included transaction fees, a far cry from the 90% of deals that included them in 1Q 2012. Similarly, only 20% of 1Q 2015 deals carried monitoring fees, far fewer than the 60% that did so in 1Q 2012.
For the most recent deals that did include fees, they were much smaller on a median basis compared to prior quarters. The median 1Q transaction fee was 2.0% versus 3.4% in 1Q 2012. The median monitoring fee was 3.0%, down from 3.5% in 1Q 2012 and much lower than the 5.0% median in 1Q 2013.
Because of the frothy dealmaking environment, transactions have been taking longer to close. Almost a quarter (24%) of 1Q survey respondents said their deals took more than 20 weeks to finalize, a reflection of heightened due diligence in the midst of near-record valuations.
Median Monitoring Fee as a % of EBITDA
Source: PitchBook
Source: PitchBook
Percent of Transactions with Deal Fees Transactions (count) by Weeks to Close
Source: PitchBook
Source: PitchBook
3.5%4.0%
3.0%
5.0% 5.0% 5.0%
3.3% 3.5%
4.2%4.5%
4.0%
3.0% 3.0%
0%
1%
2%
3%
4%
5%
6%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2012 2013 2014 2015
3.4%
2.0%
3.0%
2.0%
2.8%
2.0%
3.0%
2.0% 2.0%2.3%
1.5%
2.0% 2.0%
0%
1%
2%
3%
4%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2012 2013 2014 2015
Median Transaction Fee as a % of EBITDA
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2012 2013 2014 2015
<5 wks 5-9 wks 10-14 wks 15-20 wks >20 wks
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2012 2013 2014 2015Transaction Fees Monitoring Fees
9 PITCHBOOK 2Q 2015 GLOBAL
PE DEAL MULTIPLES & TRENDS
