G
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PE DEAL MULTIPLES + TRENDS
REPORT
1Q 2015
SPONSORED BY
INVESTMENT
MULTIPLES
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DEBT & EQUITY
LEVELS
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FEES & CLOSING
TIMES
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CONTENTS
CREDITS & CONTACT
PitchBook Data, Inc.
4
5
6
8-9
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JOHN GABBERT Founder, CEO
Introduction
ADLE Y BOWDEN Senior Director, Analysis
Content, Design, Editing & Data
Investment Multiples
ALE X LYKKEN Editor
ANDY WHITE Lead Data Analyst
Revenue Change
DANIEL COOK Senior Data Analyst
BRIAN LEE Data Analyst
GARRET T BL ACK Senior Financial Writer
Hilco Global Q&A
J ESS CHAIDEZ Graphic Designer
Contact PitchBook
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Fees & Closing Times
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REPORT
1Q 2015
SPONSORED BY
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DEBT & EQUITY
LEVELS
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Email Lisa Helme Danforth
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PE DEAL MULTIPLES + TRENDS
FEES & CLOSING
TIMES
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CO -SPONSORED BY
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COPYRIGHT © 2015 by PitchBook Data, Inc.
All rights reserved. No part of this publication
may be reproduced in any form or by any
means—graphic, electronic, or mechanical,
including photocopying, recording, taping, and
information storage and retrieval systems—
without the express written permission of
PitchBook Data, Inc. 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 past, current or future
recommendation to buy or sell any security or
an offer to sell, or a solicitation of an offer to buy
any security. This material does not purport to
contain all of the information that a prospective
investor may wish to consider and is not to be
relied upon as such or used in substitution for
the exercise of independent judgment.
3
P I TC H B O O K 1 Q 2015 G LO B A L
P E D E A L M U LT I P L E S & T R E N D S
Introduction
Synthesizing results from surveys of private
equity (PE) dealmakers and PitchBook data,
our Global PE Deal Multiples & Trends Report,
sponsored by Hilco Global and co-sponsored by
Toppan Vite and NewStar Financial, utilizes an
array of key metrics to analyze current industry
trends in dealmaking. We understand how sensitive
deal terms and multiples are to the PE industry,
and as such, will keep the details of the report
completely confidential, won’t incorporate them
into the PitchBook Platform, and will exclusively
use them for aggregated purposes in our reports.
The PE dealmaking environment heading into
2015 remained, by all accounts, highly competitive,
with a hoard of capital overhang, amenable lenders
willing to offer high-rated debt, and the ongoing
push between limited partners (LP) and general
partners (GP) regarding the level of transaction
and monitoring fees continue to cause major shifts
within the industry.
All these factors combined with PitchBook data
produced interesting, if not wholly unexpected
results. Enterprise value/EBITDA multiples of 5x
or higher increased to well over 60% in 4Q 2014,
one of the highest shares in the past two years.
Respondents also indicated that median debt
levels descended lower than any levels observed
in this report series. That, combined with the
overall downward trend in both monitoring and
transaction fees, suggests the PE industry’s
increasing shift toward an operational investment
criteria, discussed in greater detail throughout this
report.
If you are interested in participating in future
editions of the survey, please contact us at
research@pitchbook.com.
Hilco Global has over 500 employees within a portfolio of over 20 companies on 5 continents, all of
which focus on asset valuation, asset monetization, and advisory solutions. The full portfolio of Hilco
companies provides a comprehensive suite of integrated strategic services including valuation;
acquisition and disposition of assets; capital investment; and, consultative services.
Having brought together a team of the best and brightest talent in the financial services sector, Hilco Global professionals serve as
an advisor, agent, lender/bridge financier or principal investment partner in virtually every class of tangible and intangible asset on a
corporation’s balance sheet, including inventory, machinery and equipment, real estate, accounts receivable and intellectual property, and
more.
Hilco Global works closely with Private Equity Firms and Hedge Funds to deliver innovative services and capital solutions that help facilitate
and execute transactions, create liquidity and enhance the value of their portfolio companies. As an advisor, Hilco Global often serves as
a strategic partner providing management expertise and consultative solutions in both opportunistic and distressed deals such as the
Hostess transaction or revitalization of the Polaroid brand. As an investor, Hilco Global acts as an operator of many strategic businesses
and brand investments such as Halston, Kraus Flooring, and HMV Entertainment, etc. As a buyer and seller of millions of dollars of diverse
assets, Hilco helps PE firms and funds monetize a full range of assets within their portfolio companies including A/R; Real Estate; Industrial
Equipment; Intellectual Property; Orphan businesses, etc. And, as a strategic investor and capital partner, Hilco Global continues to put
millions of dollars to work as evidenced most recently in the acquisition and redevelopment of the historic Sparrows Point Steel Mill in
Baltimore, Maryland bringing in Redwood Capital as a partner.
Today, Hilco Global conducts thousands of transactions throughout the world representing virtually every asset category on the
planet.
4
P I TC H B O O K 1 Q 2015 G LO B A L
P E D E A L M U LT I P L E S & T R E N D S
Investment Multiples
Median EV/EBITDA Multiples by Enterprise Value
EV/EBITDA Multiple Breakdown
12x
100%
90%
10x
80%
70%
8x
60%
50%
6x
40%
30%
4x
20%
10%
2x
All
$0-$25M
$25M-$250M
0%
$250M+
1Q
0x
1Q
2Q
3Q
4Q
1Q
2012
2Q
3Q
4Q
1Q
2013
2Q
3Q
2Q
4Q
3Q
4Q
1Q
2012
<0x
2014
2Q
3Q
4Q
1Q
2013
0x-2.5x
2Q
3Q
4Q
2014
2.5x-5x
5x-7.5x
Source: PitchBook
>7.5x
Source: PitchBook
EV/EBITDA multiples varied considerably over the
past couple quarters; accordingly, the aggregate
curve offers a clearer summary of overall trends. Asset
prices remained fairly high through the end of 2014,
which makes sense given the convergence of the
mountain of dry powder PE firms have amassed and
the liquid fiscal environment maintained worldwide.
The gradual increase in the proportion of EV/EBITDA
multiples from 2012 to 2014 also speaks to that trend.
Granted, survey data is subject to quirks, yet the
vagaries in the data signify the multiple pressures PE
dealmakers currently face. With plenty of dry powder
compelling usage, PE investors must also contend
with outdoing public markets in the midst of a nighhistoric bull run. Consequently, it is clear there was and
will be fierce competition to drive up multiples across
the board. However, that does not seem to have led to
exorbitant increases in valuations across the board. The
gains in EV to revenue are still fairly modest, indicating a
balance between competition and caution.
Median EV Revenue Multiple by
Enterprise Value
EV Revenue Multiple Breakdown
3.0x
100%
90%
2.5x
80%
70%
2.0x
60%
50%
1.5x
40%
30%
1.0x
20%
10%
0.5x
All
$0-$25M
$25M-$250M
0%
$250M+
1Q
0.0x
1Q
2Q
3Q
2012
4Q
1Q
2Q
3Q
4Q
2013
1Q
2Q
3Q
2Q
4Q
2014
Source: PitchBook
3Q
4Q
2012
0x-0.5x
1Q
2Q
3Q
4Q
1Q
2013
0.5x-1x
1x-1.5x
2Q
3Q
4Q
2014
1.5x-2x
>2x
Source: PitchBook
Investment Multiples Definition
Investment multiples are calculated by dividing the enterprise value of the portfolio company by either the TTM EBITDA or the
TTM revenue at the time of the transaction.
5
P I TC H B O O K 1 Q 2015 G LO B A L
P E D E A L M U LT I P L E S & T R E N D S
Revenue Change
Revenue Change 12 Months Prior to Deal
Anticipated Revenue Change 12 Months
Following Deal
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
3Q
4Q
2012
Decreased > 10%
Increased < 10%
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
4Q
2014
2012
Unchanged
Decreased > 10%
Increased < 10%
2013
Decreased < 10%
Increased > 10%
3Q
1Q
2Q
3Q
4Q
1Q
2Q
2013
3Q
4Q
2014
Decreased < 10%
Increased > 10%
Unchanged
Source: PitchBook
Source: PitchBook
As asset prices remain elevated going into 2015,
the uptick in acquired companies’ revenue change
a year prior to acquisition underlines how PE investors
have turned toward even ostensibly healthy companies
as targets. At the same time, anticipated revenue
change has, by and large, declined over the past six
quarters, according to respondents. Both of these
observations emphasize the shift in PE investment
focus toward operations. Acquirers are likely honing
their focus toward companies most in need of a revamp
of operations; the more topical observation is that PE
buyers still anticipated fairly low changes in revenue a
year following acquisition. Essentially, PE firms are more
rarely purchasing troubled assets in order to reap a quick
and easy profit, instead relying on their ability to boost
value regardless due to their sheer operational expertise,
a claim which, given PE’s historic performance compared
to other major asset classes, may well be justified.
EV/Revenue Multiple by TTM Revenue
Change (2Q 2013 - 2Q 2014)
EV/Revenue Multiple by Anticipated NTM
Revenue Change (2Q 2013 - 2Q 2014)
2.7x
2.2x
Increase
Increased
1.2x
1.4x
1.2x
1.2x
Average
Flat
Flat
0.9x
Median
1.0x
Average
Median
1.0x
1.5x
Decreased
Decrease
0.8x
Source: PitchBook
1.0x
Source: PitchBook
The above charts show the average and median EV/revenue multiples based on the company’s revenue change over the 12 months prior to
acquisition and the investor’s expectation for the company’s revenue change in the 12 months following acquisition.
6
P I TC H B O O K 1 Q 2015 G LO B A L
P E D E A L M U LT I P L E S & T R E N D S
Hilco Global: Valuations, Loan
Structures, M&A and More
Q: Generally speaking, what is the
sentiment in the market right now
concerning valuations, from your
point of view? Do you see any signs of a
slowdown?
A: Today, there is a material
dichotomy between buyer and seller
expectations. Several factors are
responsible, including the global
recession, a competitive lending
market, increasing consumer
sentiment and fickle financial markets,
among others. While there is a large
pipeline of potential transaction
activity, these conditions have caused
many companies to go to market for
the wrong reasons—liquidity, financial
performance, tax code for instance.
It may be there are too many deals
being marketed with ‘hair on them’,
and too few good quality companies
for sale. It is estimated that of 10 deals
in the market, nine have some form
of stress and only one is an attractive,
well-performing company. This trend
has created two unique and different
markets for M&A transactions:
The buyer’s market. This market is
largely composed of stressed deals.
The sheer number of these difficult
transactions, long duration of the
marketing processes, lack of qualified
buyers, and the willingness of the
sellers to rid themselves of these
assets, has given buyers control of the
valuations. We have seen these deals
usually valued between 4-6x EBITDA,
or even lower in many instances.
The seller’s market. Attractive,
well-performing companies dominate
this market. Sellers are in complete
control, which means transactions are
being valued and, ultimately, bidded
up to pre-recession multiples. In
addition to the small volume of deals
in this marketplace, several other
factors are contributing to the high
multiples and, therefore, the control
enjoyed by sellers.
First, equity sponsors have
significant dry powder—cash on the
sidelines that needs to be deployed
before their investors redeem. When a
strong transaction comes across their
desk, many sponsors are determined
to add it into their portfolio. Price
becomes a secondary factor in the
pursuit.
Second, financial institutions are
being pressured to lend again, and
are sitting on large pools of capital
that needs to earn returns. Thus, debt
facilities for these quality deals are
very competitively priced with prerecession covenant light structures.
Third, strategic buyers have
managed their balance sheets
effectively over the last two years
and are flush with cash. When an
attractive, synergistic acquisition
opportunity presents itself, they are
willing to pay a premium.
Finally, sellers and their advisers,
well aware of their advantageous
position, are relying more than ever
on auctions to market their assets,
resulting in motivated financial and
strategic buyers bidding up the
transaction price. These deals can
be valued between 8-10x EBITDA, or
even higher in specific instances and
industries, such as technology and
healthcare.
Hilco’s Advisory and Consulting
Services team focuses on unlocking
value and unrealized economic
potential for its clients. Can you share
some thoughts on where clients are
finding that potential—especially in a
market where valuations are so high—
and if that’s having any impact on their
multiples?
It’s so important for companies
to conduct critical due diligence,
often pre-acquisition if possible.
This process can identify profit
improvement opportunities to
increase EBITDA that can be
implemented post-closing to give
the PE firm a competitive advantage
when bidding.
Recently, Hilco Global worked
with a women’s apparel retailer
with a chain of 200 stores that was
generating $50 million of EBITDA; at
an 8x multiple, the valuation could be
calculated at $400 million. However,
proper due diligence revealed that
embedded in the $50 million of
EBITDA were 50 stores that were
driving $10 million in losses. By exiting
the stores the EBITDA increases
to $60 million, and the market cap
increased to $480 million. Hilco
was able to create $80 million in
incremental value by eliminating the
loss-making stores.
This is even more compelling as:
(a) our real estate team can get out
of the leases for reasonable amounts,
(b) the inventory and other capital
requirements tied up in those stores
are reduced, and (c) we will generate
a return on the inventory in excess of
the bank’s advance rate so there is
little liquidity impact. Finally, the chain
has the opportunity to use a store
closing event to sell off slow-moving
and obsolete inventory elsewhere
in the chain for better value than its
chain achieved from other channels.
8
P I TC H B O O K 1 Q 2015 G LO B A L
P E D E A L M U LT I P L E S & T R E N D S
With valuations as high as they are,
where are PE firms looking closest
when valuing today’s companies,
especially with sellers having the
advantage?
Current economic conditions are
creating a tremendous amount of
stress on company operations and
results. Companies are faced with
liquidity concerns, unpredictable
consumer demand and challenges to
supplier relationships. These factors
are creating significant uncertainty
and unpredictability regarding
current performance, as well as a
lack of visibility for future projections,
which makes accurately valuing
an entity as a going concern an
extremely challenging exercise.
There are many factors that must
be addressed when valuing a target
company beyond just financial
results. Is the target a public or a
private company? Is the industry
growing, contracting or plateaued?
Is the industry global, domestic or
regional? How competitive is the
industry and its participants? How
experienced is the management
team and are they capable of taking
the company to the next level? Does
the target company have strong
relationships with is suppliers,
vendors and distributors? Are there
significant regulation or compliance
requirements related to business?
Does the business have intellectual
property, and is it properly protected
from infringement? What is the value
of the intellectual property, and is
it transferable upon a change of
control? These are just a few major
issues to address when attempting to
accurately value a target company.
Publicly-traded companies are
generally easier to value due to
the higher quality and quantity
of available information for the
company. There are, however, several
additional factors to consider. Will
the target require a significant
premium over its current valuation,
or is the market fairly valuing the
entity and its future prospects? Will
the target welcome an offer from a
potential suitor, or will the situation
be hostile? Are there cost synergies
that can be extracted from the target
to extract additional value?
Privately-held companies are
generally plagued by a lesser quality
and quantity of information that
can be used in an analysis. Also, a
private company’s capital structure
could be more complex, with various
classes of equity and debt securities.
Lastly, the final value of a closelyheld, private business may differ
from the value calculated using the
established methods of valuation—
the income, market and cost
approaches. This is because various
types of discounts or premiums
to the basic valuation must be
considered.
By most accounts, lenders have
become more aggressive in the market,
especially for PE-led deals. Have they
made any adjustments in their loan
structures to account for today’s
valuations? Are they concerned about
the current environment?
Today’s asset-based lending
environment continues to get pushed
beyond the traditional structures. As
a result, lenders find it more difficult
to meet growth objectives, deploy
additional capital and differentiate
themselves from their competitors.
As such, a key distinguishing factor
among lenders has become their
willingness to utilize the value of
certain intangible assets within their
loan structure. As a matter of practice,
intangible assets have historically
been viewed as “boot collateral,” or
as a way of stretching advance rates
on traditional assets. This thought
process, however, ignores the fact
that certain intangible assets have
true liquidation value. As such, loan
structures should take into account
the potential amounts that can be
realized upon the liquidation of these
intangible assets.
Retail professionals have told us that
retailers are essentially using M&A as a
substitute for R&D expenditures today.
Is that a fair assessment, or have you
seen opportunities in your cases where
strategic re-positioning can be better
handled organically?
Competition continues to be fierce
in the retail sector and it is seen as
one of the top three key risks cited by
senior retail executives in the segment
today. This is definitely an important
force behind the increase in M & A
transactions of late. Many retailers
see it as way to add capabilities or
grow their geographic reach, while
others hope to build market share by
joining forces with a once-competitor.
With several noteworthy deals either
closing or in the works, including
Staples, Office Depot and Office Max
and the ongoing Men’s WarehouseJos. A. Bank saga, retailers are under
increasing pressure to grow their
offerings and reach. Some choose
to do so by pursuing mergers or
acquisitions of their own. We see
this desire to increase market share
as a key impetus behind recent deal
activity, with many retailers looking
for strategic buyers, as opposed to
financial buyers. It is difficult and often
slow to fuel growth and expansion
into new ideas concepts through
organic means as the market wants
more, faster. To jumpstart sales,
particularly for a public company that
needs to show top-line growth, M&A
does serve a useful role.
9
P I TC H B O O K 1 Q 2015 G LO B A L
P E D E A L M U LT I P L E S & T R E N D S
Debt & Equity Levels
Median Debt Levels
Median Debt Levels by Enterprise Value (1Q ’12 - 4Q ’14)
65%
65%
62%
59%
60%
60%
59%
60%
58%
53%
55%
58%
58%
58%
56%
54%
55%
55%
52%
50%
49%
50%
47%
50%
45%
1Q
2Q
3Q
4Q
2012
1Q
2Q
3Q
4Q
1Q
2013
2Q
3Q
4Q
2014
45%
All
$0-$25M
$25M-$250M
$250M+
Source: PitchBook
Median debt levels dropped to the lowest level
observed in two years, according to survey
respondents. Unpacking debt levels by EV lends
more insight, as does breaking down debt and equity
proportionally. Senior debt has increased in popularity
over the last year, particularly in 4Q 2014. Across the
same timeframe, it appears the usage of equity has
dwindled. With plenty of dry powder to burn, the
decrease in equity usage makes most sense in context
of expensive deals and anticipation of interest rates.
Source: PitchBook
While they still enjoy low interest rates, PE investors
are tapping debt markets in order to ease the blow of
shelling out so much money for prime targets. Debt
levels by EV lend some credence to this assumption;
PE firms are utilizing the most debt for deals at both
ends of the size spectrum because the largest are
quite expensive and the smallest carry the least risk.
However, they are primarily using senior debt, again
in anticipation of potential rate hikes by the U.S. Fed,
which could presage hikes worldwide.
2012
2013
2014
Average Debt-to-Equity Breakdown
4Q
3Q
2Q
1Q
4Q
3Q
2Q
1Q
4Q
3Q
2Q
1Q
0%
10%
20%
30%
Equity
40%
50%
Senior Debt
60%
70%
Non-Senior Debt
80%
90%
100%
Source: PitchBook
Note: PitchBook receives varying levels of detail regarding the debt used in deals. Some of the charts on this page utilize a subset of our data that
contains additional details. In addition, some charts are displaying median debt levels while others show average debt levels. This explains any
discrepancies that may be noticed between the charts.
11
P I TC H B O O K 1 Q 2015 G LO B A L
P E D E A L M U LT I P L E S & T R E N D S
Fees & Closing Times
Although median transaction fees rose slightly in the
final quarter of 2014, the gradual trend downward
among all transaction fees, despite fluctuation between
quarters, is obvious. Monitoring fees, for example, haven’t
constituted as low a percentage of EBITDA since 3Q 2012.
It would appear PE firms are heeding admonitory calls
from LPs asking for more transparency and equitable fee
provisions by gradually shifting their approach. Increased
attention from regulators regarding these types of fees
doubtless has also played a role in the gradual decrease
over the years. This shift in the industry’s approach
coincides with an ever-more competitive dealmaking
environment, as is evidenced by the slow increase in
the proportion of deals taking upwards of 10 weeks to
close throughout 2014. The increase is also likely due
to investors more closely examining target companies’
operations. As they vie for the most attractive targets, PE
firms are tending to focus more and more on operational
expertise. Accordingly, as the buy-and-build approach
grew increasingly popular last year, it makes sense
that PE buyers are devoting careful attention to their
prospects, given those prospects’ welfare is the path to
profitability most securely in their control.
Median Transaction Fee as a % of Deal Size
Median Monitoring Fee as a % of EBITDA
4%
6%
3.4%
3.0%
3%
2.8%
4%
2.3%
2.0%
2.0% 2.0%
2.0%
2.0%
2.0%
2%
5.0% 5.0% 5.0%
5%
3.0%
1.5%
4.2%
4.0%
3.5%
3.3%
3.0%
3%
4.5%
4.0%
3.5%
3.0%
2%
1%
1%
0%
0%
1Q
2Q
3Q
4Q
1Q
2012
2Q
3Q
4Q
1Q
2Q
2013
3Q
4Q
1Q
2Q
2014
3Q
4Q
1Q
2Q
2012
3Q
4Q
1Q
2Q
2013
4Q
2014
Source: PitchBook
Source: PitchBook
Percent of Transactions with Deal Fees
Transactions (count) by Weeks to Close
100%
100%
90%
90%
80%
80%
70%
70%
60%
60%
50%
50%
40%
40%
30%
30%
20%
20%
10%
10%
0%
3Q
0%
1Q
2Q
3Q
4Q
1Q
2012
Transaction Fees
2Q
3Q
2013
4Q
1Q
2Q
3Q
4Q
1Q
2014
Monitoring Fees
Source: PitchBook
2Q
3Q
4Q
2012
<5 wks
5-9 wks
1Q
2Q
3Q
4Q
1Q
2013
10-14 wks
2Q
3Q
4Q
2014
15-20 wks
>20 wks
Source: PitchBook
12
P I TC H B O O K 1 Q 2015 G LO B A L
P E D E A L M U LT I P L E S & T R E N D S