Although revised upward, first quarter GDP data slowed, as has recent retail sales information. However, sentiment as per the University of Michigan Consumer Confidence survey has remained strong during this time period.
Earlier this month, at ACG Intergrowth in New Orleans and M&A Source in Orlando, we surveyed private equity executives for the fourth year in a row, and launched a new survey series known as the “Down Low” Report, which provides quarterly updates on M&A activities and trends specifically on closed transactions with an enterprise value of $75 million or less. Much like the Michigan Consumer Confidence report, our studies indicate that confidence by the professionals within M&A remains fairly robust.
Highlights from the survey responses at ACG InterGrowth in New Orleans and the M&A Source in Orlando include the following:
- The peak average time to close a deal has decreased to four to six months, down from six to eight months in 2015. This decline would indicate that sellers, investment bankers and private equity groups are more deliberate with their decision making and process to close
- Purchase multiples peaking at 7X, a level similar to 2015
- Expected aggregate revenue growth within the current portfolio over the next twelve months had results similar to the prior two years
Highlights from the Q1 “Down Low” Report on transactions valued at <$75M show some healthy purchase multiples given the deal sizes and had diversity in the sectors and geography:
- Purchase price multiples followed a traditional bell curve, with a peak of 20% of closed transactions in the 6.1-7.0X EBITDA range (38.5% of all respondents reported multiples in the 5.1-7.0X EBITDA range). Approximately 29.2% of deals reported closed in the 3.1-5.0X EBITDA range
- Buyer types were weighted toward strategic at 39.4%, while new private equity platforms accounted for 30.3% and private equity-backed strategic (add-on) deals ranked third at 16.7%. Notably, no groups reported closing a deal with a foreign investor
- Geographically, the transactions were relatively evenly spread throughout the United States: Midwest (23.9%), West Coast (23.9%), Northeast (19.4%), Southeast (17.9%), and Mid-Atlantic (10.4%)
In addition to this quantitative data, the qualitative tone and sentiment at both conferences and surveys appeared to be fairly optimistic. While we have all seen a decline in deal volume, perhaps we should look around and see that we are all quite busy and that is a source for optimism in the future!
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