Private Equity Investing EVs Decline In Q2

Private Equity Investing EVs Decline In Q2

As multiples by EV have largely declined, Private Equity firms have shifted focus to the middle market, though with caution, states Pitchbook. PNC Business Credit and Toppan Vite published their “PE Deal Multiples & Trends Report” based on quarterly surveys filled out by deal makers around the world.

Private Equity – Concerns about median debt levels

According to the report, median debt levels pose concerns, as for the second straight quarter, the median debt component was below 50% and in fact hit its lowest point (47%) since the survey was initiated over three years ago. The report notes that since hitting a 62% median in 2Q2014, debt levels have precipitously declined over the last three periods:

Exclusive: Third Point is diving into the private and SPAC markets [In-Depth]

Nestle Dan Loeb Daniel Loeb third point capital hedge fund manager activist investor poison pen activism Yahoo corporate governance famous investorsDan Loeb's Third Point returned 11% in its flagship Offshore Fund and 13.2% in its Ultra Fund for the first quarter. For April, the Offshore Fund was up 1.7%, while the Ultra Fund gained 2.3%. The S&P 500 was up 6.2% for the first quarter, while the MSCI World Index gained 5%. Q1 2021 hedge Read More

The report points out that PE firms have plenty of capital to dispense as deal sourcing continues to be difficult, which led to a sustained shift towards high usage of senior debt coupled with yet another quarterly decline in median debt percentages.

Average debt-to-equity breakdown PE Firms

The authors of the report highlight that debt remains more highly utilized at the upper and lower end of EV, indicating that buyers are opportunistically picking and choosing where best to leverage.

Median debt levels by EV PE Firms Private Equity

PE firms target healthy metrics

The report notes that since 2012, there has been a gradual increase in the proportion of EV/EBITDA multiples exceeding 7.5x.

EV-EBITDA multiples PE Firms

The authors argue that the latest EV-to-revenue reading indicates that just about 30% of deals in 1Q2015 had EV/revenue multiples exceeding 2x, with 20% at the opposite end in the 0x to 0.5x range. The report notes that even in a heated, competitive market, Private Equity firms are still finding deals and exhibiting a fair amount of deliberation while doing so:

EV-Revenue multiple breakdown PE Firms

The Pitchbook points out that the completion of quality deals led PE firms to increasingly target companies with fairly healthy metrics. The report notes that the proportion of companies with revenue increases over 10% stayed substantial in the first quarter.

Revenue change prior to deal PE Firms

The report suggests that the above scenario could explain why the number of those predicting considerable revenue changes post-deal slid again between 4Q2014 and 1Q2015.

Revenue change post deal PE Firms

The Pitchbook points out that the EV/revenue multiples by prior and anticipated revenue change indicate a moderate positive outlook as well with a median of 1.2x in EV/revenue multiples for investors, predicting no change in the next 12 months’ revenue:

NTM revenue change PE Firms

Turning its focus towards fees and closing times, the report notes that fee charges have dropped considerably. The survey also states that only half of 1QPE deals included transaction fees, a far cry from the 90% of deals that included them in 1Q2012. Similarly, only 20% of 1Q2015 deals carried monitoring fees, which was far fewer than the 60% that did so in 1Q2012:

Fees and closing time PE Firms

The report points out that thanks to the frothy deal making environment, transactions have been taking longer to close with almost a quarter of 1Q survey respondents indicating that their deals took over 20 weeks to finalize, a reflection of heightened due diligence in the midst of near-record valuations.

No posts to display