GF Data recently published its Q3 M&A report and the take away from their collected data is a slight variation on the status quo in M&A…or more accurately “Less of the Same.”
Trends in transaction activity remained fairly constant, but the number of completed deals dropped over 27% from the second quarter to the third, 51 deals to 37. This drop off may be slightly exaggerated due to late reporting, but the volume in the September quarter was light.
Size premiums remained at near record levels and valuation rewards for better than average performing companies continued. Companies in the $50-250 million total enterprise value range traded at an average of 8.0x for the first nine months of the year, while smaller size companies ($10-50 million) traded at an average of 6.3x. Buyers continued paying premiums for companies with not only better than average financial performance, but also prior institutional ownership and management retention post sale. Buyouts featuring these elements have been valued at an average 8.9x year to date.
Prior to 2012, buyers paid anywhere from .2x to 3x more for platform vs. add-on acquisitions. During the past three years, the valuation differences between platform acquisitions and add-on acquisitions have narrowed significantly and in the most recent quarter – 3Q 2015 – add-ons had the upper hand. Valuations for the year are now about even for the two groups – 6.9x for platforms vs. 6.8x for add-ons.