Inflated Multiples Driving Increased U.S. Add-on Activity
October 12, 2015
The U.S. PE buyout boom appears to have peaked in 2014, which saw around $617 billion in total deal value close. Not to be mistaken, deals are still getting done these days, just at a slower pace, thus aggregate value is coming down as well. While still relatively inflated, median EBITDA multiples for buyouts have indeed declined a bit—at 8.3x in 2015 thus far compared to 10.7x last year—and with emerging markets and foreign economic rifts not likely to pare back in the short term, a softening deal market could be looming. GPs still have weapons to protect their future exit values, at least to an extent. One strategy is the use of lower-multiple add-on combinations to provide quicker growth and value to existing portfolio companies.
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As noted in our free 4Q 2015 U.S. PE Breakdown Report, add-ons have accounted for 47% of all completed deals in the U.S. this year thus far and a record 62% of all buyouts. If values were to decline significantly moving forward, these cheaper, value-add transactions could help firms save a bit of the exit multiple they would have otherwise lost.
PitchBook Platform users can click here to access our underlying data on U.S.-based add-ons. Clients can also access the U.S. PE Breakdown in the reports library of our platform; premium newsletter subscribers were emailed a version of the report.