It's A Deal

July 1, 2008

Life Goes On

By now, you’ve seen the numbers that marked the carnage that was the first half in M&A. Crazy stuff, such as private equity volume off by 85% in the US, and not much less than that around the world. Or total M&A being down 35% in the first six months of the year versus the same time frame last year.

It’s enough to make you want to auction off your life like that guy on eBay did. (In case you missed it, he’s in such a rut that even the sale price for that was a disappointment.)

But all that doom-and-gloom is for the big boys to worry about. Down market, things are humming along just fine, right?

Well, maybe.

It kind of depends on where you look. We’re not breaking news to say that overall deal flow is down versus the brisk pace of years past; according to the latest numbers from GF Data Resources, a Philadelphia-area firm that offers data on private equity-sponsored M&A deals with values of $10 million to $250 million, the 79 firms it tracks completed just 15 deals in the first quarter. That’s down from 31 in the first quarter of 2006 and 28 in last year’s first stanza.

Meanwhile, valuations are still inching lower, for the most part. GF found that overall valuations (total enterprise value as a multiple of adjusted Ebitda) dropped from 5.8 times in the second half of last year to 5.6 times in the most recent first quarter.

There were a couple of potential bright spots, however. Interestingly, valuations within deals valued between $50 to $100 million jumped to 7.4 times in the first quarter from 5.8 times in the second half of 2007. While GF noted only a handful of deals were done within that range in the first quarter, the multiple was also higher than it was in the first half of 2007 (7.0 times).

What’s more, as GF’s private equity clients were handing in the sickly first-quarter stats, they also said they were seeing a substantial increase in deals under letter of intent, which very well could be reflected in 2Q numbers.

And finally, the firm found that while there are pockets of troubled sectors, and a handful of troubling conditions (oil, inflation, etc.), most folks in the lower middle-market arena still don’t believe that the ongoing credit mess is going to lead to a sustained pullback in that sliver of the market.

And if they’re wrong, there’s always eBay.