Larger Players Squeeze Mid Market PE Firms

As reported in the Wall Street Journal, it is a difficult time to be a mid-market private-equity firm. Larger competitors, a seller's market and high valuations are combining to create a difficult atmosphere for smaller firms. “We have been getting blown out of the water on bids. Everything is going to auction, that wasn’t the case 10, even five years ago.” said Stratton Heath, partner at Oak Hill Capital Partners, this past Friday. Traditionally, PE firms could come in and make a bid that was persuasive enough for a company to not need to consider an auction process, but sellers are becoming more and more selective.  This also could lead to buyer's remorse; if you're paying top dollar to win a bidding war for a middle market firm, you'd better be right. Read the entire article here.

Actavis to Acquire Forest Laboratories for $25 Billion

Today, Actavis announced that they have entered into a definitive agreement to acquire Forest Laboratories. Forest is based in New York, NY, but has Midwest operations in Earth City, MO. The purchase price of $25 billion represents a 25% premium over Forest's stock price. The merger is expected to generate double digit accretion in 2015 and 2016, with approximately $1 billion in synergies to be realized within the first three years. If successfully completed, the merger would combine a generic juggernaut in Actavis with a leading name brand producer in Forest. If the transaction closes, the combined entity would have projected revenues of more than $15 billion in 2015, with strong free cash flows in excess of $4 billion. As 2014 rolls on, several interesting deals are coming to light. The Actavis-Forest merger announcement comes on the heels of a potential business combination of Comcast and Time Warner, which is estimated at ~$45 billion in value. Hopefully, these large deals will spur the lower middle and middle markets to follow suit, although the glut of megadeals in 2013 did not seem to have that impact. Read the full press release from Actavis here.

Pitchbook PE Deal Multiples Show Deal Multiples for Small Deals Falling

November 14, 2013 09:47 by Clayton Reeves in Capital Markets, Financing, M&A, Private Equity  //  Tags: , , , , , ,   //   Comments (0)
As reported by Pitchbook, PE transaction multiples were reasonably steady in Q3 2013. However, deal size showed significant changes. For example, median enterprise value (EV) for small deals (EBITDA<$25 million) fell from 5.0x in Q2 to 2.5x in Q3. On the flip side, EV/EBITDA multiples rose to 10.7x for transactions of $250 million or more, while revenue multiples fell to 1.7x, the lowest in over two years. So, what does this mean for the market? It means PE firms (and the market in general) continue to pay for profitability over pure sales. Market participants definitely want revenue growth, but they also want healthy margins and solid business models. Since companies with both are rare, PE firms continue to pay a premium on larger transactions. There is generally still no rush towards companies that show revenues, but lack profits, unless the growth story is compelling (i.e., Twitter).  Key statistics from 3Q 2013 explored in this report include: Median EBITDA multiple:6.81x Median debt percentage: 50% Average time to close a deal: 13 weeks Read the full report here.

Q2 Deal Multiples Update

August 21, 2013 10:45 by Clayton Reeves in Capital Markets, Economy, M&A  //  Tags: , , , , ,   //   Comments (0)
The market was widely unchanged from Q1 to Q2 2013.  Multiples remained comparable to the quarter prior, and there remained a significant premium in play for larger companies. - The median EBITDA multiple for all deals was 6.07x.- The median revenue multiple for all deals was 1.06x.- The median debt percentage for all deals was 57%.- The average time to close a deal was 15 weeks. One of the most interesting factors was the push away from only companies with topline growth; in the most recent quarter,  33% of the acquired companies saw flat or shrinking revenue in the year prior to acquisition, while respondents anticipate that 90% of the companies acquired in 2Q will see heightened revenue in the year ahead.  Last quarter, very few companies would invest in a company without topline growth.  It looks like the competition between buyers may be forcing the hand of some participants to go outside their normal constraints. Click here to read the report from Pitchbook.

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