Mixed Signals For Private Deal Market
Poll shows average purchase prices have roughly doubled.
August 25, 2009
The Alliance of Merger & Acquisition Advisors released the results of a survey Tuesday showing that the volume of deals among mid- and small-cap private companies has fallen off precipitously in the first half of the year.
The survey, which polled AM&AA member deal brokers, advisers and acquirers, showed a 58% decline in the total number of transactions among private companies compared to the first half of 2008 and a 44% falloff from 2007.
The news wasn’t all bad, as the total dollar volume of transactions was off by only 12% from last year and 22% from 2007. The average deal size grew to $13.5 million, almost doubling the $7.8 million average a year earlier, suggesting that smaller transactions are having a harder time crossing the finish line. Meanwhile, the average acquisition multiple across all industries was 4.69x Ebitda, according to the survey.
The poll is largely in line with data from the broader M&A market, which has seen the number of transactions fall almost 28% year to date, according to Thomson Reuters. However, the data provider also tallied a 36% falloff in the dollar volume, which -- in contrast to the AM&AA survey -- implies that dealmaking at the top end of the broader M&A market has slowed.
Perry Campbell, chair of the AM&AA market research committee, pointed to the difficult financing environment for the slowdown, but added that that performance issues also played a role. He told Mergers & Acquisitions that smaller targets, in the absence of compelling offers, “will pull a company off of the market, wait for things to recover, and then do it all over again” when the conditions improve.
Campbell cited a separate research report from data provider GF Data Resources, noting that there is a “middle ground” within the small and middle market – involving deals between $40 million and $80 million in size – that seem to be less affected by the downturn. Campbell said the companies falling into this range may not show the volatility of smaller targets, but also aren’t as reliant on the syndication market for financing as the larger companies.
Campbell added that deal pros are seeing “early signs” that buyers and sellers are returning to the market.
A few recent deals in the middle market support this assessment. Advent International, for instance, agreed to take Charlotte Russe private yesterday in a $380 million transaction. The purchase price, valuing Charlotte Russe at $17.50 per share, almost doubles an offer from KarpReilly earlier this year.
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