The first edition of our 2016 PE Deal Multiples Report series has been released, chock full of insights straight from a survey of private equity dealmakers.
You can download the full report for free, but if you're looking for an idea of what you'll get, we highlighted three key takeaways below. Also included in the 12 pages of content (but not here), are metrics on debt & equity levels, closing times & earnout provisions and much more, supplemented by data from the PitchBook Platform.
Note: The data consists only of transactions closed in the U.S.
The expected drop arrives
Deal multiples fell to 6.9x in 1Q, a noticeable drop from 2015 levels—and we’ve been waiting on this. The sluggish market toward the end of last year resulted in many dealmakers renegotiating transaction terms and prices. Quality targets moved forward unaffected, which heavily impacted the high figure we saw in 4Q. As we moved into 1Q, many deals eventually closed at lower multiples, reflecting more realistic expectations around growth trajectories.
A different type of target
20% of respondents reported they had acquired businesses with TTM revenue declines. That figure is up from 14% toward the end of 2015. GPs will need to commit more time to these targets to wring out value, yet this strategy allows managers to continue putting capital to work. The ability to source, execute and operate slower-growth or more distressed businesses can be extremely valuable, as such deals can place negotiating leverage in the buyers' hands.
Deal fees return to high levels
Transaction fees actually jumped on a quarterly and yearly basis, driven by sell-side advisory practices keeping mid-market bankers busy. As lower-middle-market and tier-2 businesses continue to evaluate the opportunities, middle-market bankers have been faced with the challenge of trying to keep up, and transaction fees have risen slightly as a result of simple demand.