Graeme Frazier is a partner in GF Data Resources LLC, which provides reliable transaction data on lower middle market transactions completed by private equity sponsors with $10mm to $250mm in enterprise value, and he is also president of Private Capital Research LLC, a consulting firm that provides investment opportunities to middle-market private equity firms and corporate clients.
• Overall, the market is very robust across the board. The Southeast is as healthy, if not healthier, than any other market in the country.
• Q1 was statistically similar to Q4, which bodes very well for the market. Historically, the volume of M&A deals tends to decline by about 25 percent from Q4 to Q1. Valuations were also up in Q1 2015. We’re likely to see a record year if things continue with this momentum.
• The average EBITDA multiples at which companies are selling were at historic levels in several market segments in Q1 2015. For example, the average multiple for healthcare services companies was 8.1x, and it was 7.7x for technology deals completed by private equity sponsors. Other notably robust sector multiples included 7.3x in publishing/media, 7.3x for distribution, 6.7x in business services and 6.6x in manufacturing.
• While this may all seem too good to be true, it isn’t. The fundamentals don’t appear to be incredibly overheated; debt multiples are up but not over the top and pricing on leverage is reasonable.
• Owners need to consider risks from the buyer’s perspective. Sellers tend to have blind spots for things relative to real estate leases, supplier contracts and customer contracts.
• Finding the right private equity partner is critical. Sellers should be looking for someone who has experience with similar companies and who thoroughly understands the industry. The right partner should have experts on staff and a proven track record of companies they’ve done business with. Continue reading Record Year is Within Reach: An Interview with Graeme Frazier