G

PE DEAL MULTIPLES
REPORT
2016: II
SPONSORED BY

MEDIAN EV/EBITDA
MULTIPLES AT SUB$25M EVs HIT 6.1X

DEBT USAGE
REMAINS FLAT
Page 7

Page 5

TRANSACTION FEES
FALL FROM
RECENT HIGHS
Page 8

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Credits & Contact

PitchBook Data, Inc.
JOHN GABBERT Founder, CEO
ADLEY BOWDEN Vice President,
Market Development & Analysis

Content
NIZAR TARH U NI Senior Analyst
DYL AN COX Analyst
BRYAN HANSON Data Analyst
J ENNIFER SAM Senior Graphic Designer

Contents

Contact PitchBook
pitchbook.com
RESE ARCH
reports@pitchbook.com

Introduction

Investment Multiples

EDITORIAL
editorial@pitchbook.com
SALES
sales@pitchbook.com

Revenue Change

Debt & Equity Levels

Fees

Closing Times & Earnouts

Activity Indicators

10

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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
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This material does not purport to contain
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3
P I TC H B O O K 201 6 G LO B A L P E D E A L M U LT I P L E S R E P O R T: I I

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Introduction
Through the second quarter of this year, aggregate valuations across PE have
remained at a slightly subdued level, yet weve seen considerable movement
in multiples across different enterprise-value size buckets. As managers have fled
to the lower middle market and below to find better relative value in recent
quarters, it seems competition has even increased at the lower depth of the value
spectrum, with valuations there moving considerably higher.
Revenues remain stagnant, and with PE managers in many cases operating in a
world that moves more closely with the broader economy, we continue to expect
this trend to remain the same. Subsequently, debt levels remain lower than the
historical norm. Managers have been forced to write larger equity checks, yet
this trend has also helped accelerate close times as deals can close without some
of the traditional lending contingencies that can prolong processes.
Over the past few years, the pool of target assets that could see material
growth has shrunk. Managers today are forced to pick apart deals on a case-bycase basis much more than before. While we see datasets that show multiples
remaining stubbornly high, those dont take into account the declining sample
size of closed transactions. Activity is down, and there continues to be an everwidening gap between top-quality deals where buyers are stretching price tags
and the large pool of assets that are trading at significant discounts. At this point
in the cycle, thats how the game gets played and we expect to see the trends

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P I TC H B O O K 201 6 G LO B A L P E D E A L M U LT I P L E S R E P O R T: I I

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Investment

higher-quality companies. With 1Q

multiples falling off in part due to the
aforementioned tier-2 deals finally
closing during the first quarter of the

Multiples
Overall transaction multiples during
the second quarter of the year
remained relatively flat, coming in
at 7.50x, only a slight shift upward
from the 7.44x figure recorded in 1Q.
That said, the breakdown between
transactions by enterprise value
showed noticeable movement on a
consecutive basis.
At the sub-$25 million EV range,
survey respondents reported a median
EV-to-EBITDA multiple of 6.13x, nearly
a whole turn higher from what we saw
in 1Q, and the second-highest figure
weve recorded since the inception of
this survey. In previous reports, weve
touched on the pressure put on many
middle-market managers by auction
processes. With that, we began seeing
more managers willing to source
transactions at the lower middle
market and below, as well as an uptick
in the number of niche managers
coming to market to raise smaller
vehicles that would target these lower
deal-size buckets. Yet it appears that
as managers have moved lower down
the value chain, competition and
consequently prices have risen in the
exact place where dealmakers have
looked for relative value, an interesting
trend well look to follow closely in the
coming months.
Deals valued between $25 million
and $250 million also saw multiples
jump significantly over the 1Q figures
recorded in the last iteration of this
report. During the last quarter of
2015, we saw market pressures extend
negotiating periods for many deals
that ultimately ended up closing in
1Q. Naturally, top-tier deals saw their
closing processes move relatively
smoothly during that time period,
and thus 4Q 2015 saw multiples
come in at 8.50x, driven by a skewed
sample population that included

year, the jump in 2Q for deals valued

between $25 million and $250 million
could simply be pricing returning back
to previous norms.

Median EV/EBITDA buyout multiples by EV under $25M

7x
6x
5x
4x
3x
2x
1x
0x
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2012

2013

2014

2015

2016
Source: PitchBook

Median EV/EBITDA buyout multiples by EV from $25M to $250M

10x
8x
6x
4x
2x
0x
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2012

2013

2014

2015

2016

Source: PitchBook

Median EV/EBITDA buyout multiples by EV above $250M

20x
15x
10x
5x
0x
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2012

2013

2014

2015

2016

Source: PitchBook

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P I TC H B O O K 201 6 G LO B A L P E D E A L M U LT I P L E S R E P O R T: I I

SPONSOR

Revenue change
The percentage of companies for
which revenue was unchanged in the
TTM prior to close more than doubled
to 21% quarter over quarter (QoQ).
That is, more companies are chugging
along without much growth.
Over the same timeframe, the
percentage of deals for which the

target companys revenue increased

by greater than 10% in the 12 months
immediately preceding a deal shrank
slightly, to 36%. The wider trend,
however, is that the proportion of
companies that exhibit such strong
growth has decreased almost every
quarter since 4Q 2014, reflecting a

Revenue change 12 months prior to deal

100%
80%
60%
40%
20%
0%
3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2012
2013
Decreased > 10%
Increased < 10%

2014
Decreased < 10%
Increased > 10%

2015
2016
Unchanged
Source: PitchBook

Anticipated revenue change 12 months following deal

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

wider corporate earnings lag and

sluggish global economic growth.
According to Factset, the S&P 500
has experienced five consecutive
quarters of year-over-year earnings
declines through the end of 2Q 2016.
Concurrently, the percentage of
survey respondents who say that their
target companies TTM revenue either
decreased or showed no growth has
trended steadily upward for the last
two and a half years.
GP sentiment regarding future
performance also took a hit this
quarter. 79% of investors predicted
revenue growth for their target
companies in the twelve months
following acquisition. While that
figure appears high, it comes in lower
than what weve seen in either of the
previous two quarters. Further, GP
expectations of revenues to grow
up to 10% have trended downward in
the last two years, a trend that speaks
to the growing quality gap between
companies coming to market with
some presenting impressive top-line
trajectories and some doing the
opposite. 17% of GPs anticipate
company revenues to remain
unchanged for a year after acquisition.
This could be due to changing
strategies that take longer to show
results. More likely, however, is that
these portfolio companies are subject
to the same macroeconomic
headwinds as their public
counterparts. Deal teams must be
careful not to be overly optimistic
when penciling out their next potential
investment.

3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2012
2013
Decrease > 10%
Increase < 10%

2014
Decrease < 10%
Increase > 10%

2015
2016
Unchanged
Source: PitchBook

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P I TC H B O O K 201 6 G LO B A L P E D E A L M U LT I P L E S R E P O R T: I I

SPONSOR

Debt & equity levels

Debt usage across PE remains
historically low. The median debt
percentage in 2Q 2016 was 50% for the
fifth quarter in a row. With traditional
lenders ever warier, many in the US
expecting a rate hike sometime in
the next year, and a greater spread
in the quality of target companies,
it has become more difficult for PE
investors to find the financing that was
once readily available to them on a

broader basis. Only 11% of respondents

reported using non-senior debt in the
two most recent quarters, down from
17% in 4Q 2015. If lenders remain risk
averse and economic growth remains
weak, future refinancing could become
difficult. Simultaneously, lower debt
levels will put downward pressure on
future equity returns. Consequently,
portfolio managers will have to
be extra diligent with operational
improvements instead of relying on
levered returns and a healthy exit
environment.

The relationship-based lending that

is more common in the lower and
parts of the core middle market
allows managers to be slightly
more aggressive. Familiarity with a
PEGs strategy and knowledge of
past deals allow for more thorough
underwriting. Deals below $25 million
in EV averaged 53% debt usage in
the quarter, somewhat lower than the
$25 million to $250 million bucket but
much more than larger transactions.

Median debt levels

Average debt levels by EV (2Q 2016)

75%

65%
Source: PitchBook

70%
65%

60%

60%
55%

55%

50% 50%

50%

54%
53%

52%

45%

50%

Source: PitchBook
*Data from Global PE Deal Multiples Survey
combined with PitchBook platform data

40%
35%

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2012

2013

2014

2015

48%

45%

2016

All

$0-$25M

$25M-$250M

$250M+

Average debt-to-equity breakdown

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1Q

2Q

3Q

2012

4Q

1Q

2Q

3Q

4Q

1Q

2013
Equity
Senior Debt

2Q

3Q

4Q

1Q

2014
Non-Senior Debt

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P I TC H B O O K 201 6 G LO B A L P E D E A L M U LT I P L E S R E P O R T: I I

2Q

3Q

2015

4Q

1Q

2Q

2016
Source: PitchBook

SPONSOR

Fees
Median monitoring fees dropped
by half of a percentage point in
2Q 2016 to 2.0% of EBITDA, tied for
the lowest of any quarter since our
survey began. Limited partners have
recently shown a preference toward
working with fewer investors, allowing
them to co-invest more often and
negotiate lower management fees.
With this greater involvement comes
more awareness around monitoring
fees and pressure from LPs to do away
with them completely. 23% of survey
respondents reported to have built in
monitoring fees to deals completed
in the second quarter. Just two years
ago, in 2Q 2014, that number was at
43%. This figure has trended down
ever since, and an increased number
of managers now operate without the
expectation of receiving it.

as a percentage of enterprise value

decreased by a full point QoQ to
2.0% of deal size. Historically, this
figure tends to range between 2%
and 3%, but its interesting to note
that survey respondents reported
steady growth in transaction fees as
a percentage of EV for almost two
years prior to this quarter. As addons became increasingly prevalent
in years past, median transaction
size had diminished, meaning that
fees increased as a percentage of

deal size. With that, the drop off in

2Q can potentially be attributed to
service providers on these deals
willing to work at a discount in order
to gain business later on when the
accumulated platform is put on the
market. It could also be that SPs have
gained familiarity with the certain
deal structures and industry specifics
by this point in the add-on cycle, and
therefore have to put fewer hours into
each deal.

Proportion of transactions with fees

100%
90%

82%

80%

74%

70%
60%
50%

45%

40%
30%

As the volume of middle-market

transactions continued to decline in
the second quarter, so too did the
fees associated with those deals.
Median transaction feesmeasured

20%

23%

10%

Transaction Fees

0%

Monitoring Fees

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2012

2013

2014

2015

2016
Source: PitchBook

Median monitoring fee as % of EBITDA

Median transaction fee as % of deal value

6%

4%

5%

5.0% 5.0%
4.2%

4%
3.3%

4.5%

3%

4.0%

3.0%

3.0%

2.8%

2.8%
2.5%

3.5%

3.5%
3.0% 3.0% 3.0%

3%

2%

2.5%
2.0%

2%

2.3%

2.3%
2.0%

2.0%

2.0%

2.0% 2.0%

2.0%
1.5%

2.0%

1%
1%
0%

0%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2013

2014

2015

2016

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2013

2014

Source: PitchBook

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P I TC H B O O K 201 6 G LO B A L P E D E A L M U LT I P L E S R E P O R T: I I

2015

2016
Source: PitchBook

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Closing times & earnouts

On average, deals closed faster than
expected in 2Q 2016. According
to our survey respondents, only 23%
of deals took longer than 14 weeks
to close, the lowest of any quarter
since the survey began. 44% of deals
in our survey population closed in 10
to 14 weeks, up from 31% last quarter.
As PE investors are crowded out of
larger deals by corporate acquirers,
they move towards smaller deals with
shorter closing processes. Due
diligence tends to be less complex
for these smaller deals. Similarly,
the lower debt levels seen as of late
tend to help accelerate processes as
dealmakers can offer quick closes
for targets without some of the
customary financing contingencies
that accompany many transactions.
Lastly, investors, lenders, and
service providers have become more
accustomed to the current highmultiple environment and thus, the
timetable necessary to get all parties
involved in a deal process on the same
page has shrunk in many cases.
40% of deals in our survey had earnout
provisions attached to them, down
from 46% in 1Q 2016. The broader
trend over the last year, however, is
that managers have become more
likely to use earnout provisions to
limit their downside. Unease about
the macroeconomic future, as well as
the record-high multiples seen in the
past year, can certainly cause wariness
amongst those looking to put capital
to work. These variables can also
cause a gap between buyer and seller
expectations, and earnouts can be a
useful way to bridge that divide.

Transactions (#) by weeks to close

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2012
<5 wks

2013
5-9 wks

2014
10-14 wks

2015
15-20 wks

2016
>20 wks

Source: PitchBook

Proportion of deals with earnout provisions

60%
50%

46%
40%

40%
30%
20%
10%

Source: PitchBook

0%

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2012

2013

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P I TC H B O O K 201 6 G LO B A L P E D E A L M U LT I P L E S R E P O R T: I I

2014

2015

2016

SPONSOR

Activity indicators
If your firm receives 100 Confidential Information Memoranda (CIMs)
this year, for what percentage of that 100 will you:

30%
25%
20%
15%

Statistics on CIM count in 2Q 2016:

Minimum

Median

15

Maximum

300

Average

30

Standard deviation

48.5

10%
5%
0%

22%
Average of
Indication of
Interest

28%

18%

12%

Average of Mgmt Average of Submit Average of % Close

Presentation
LOI
Deal
Attendance
Source: PitchBook

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