Live Cat Bounce

Transactions completed in the third quarter of 2020 suggest a market stunned by the pandemic, but with a cat-like capacity to land on its feet.

GF Data’s 228 active private equity contributors completed 50 transactions in the quarter meeting the data tracking firm’s parameters – Total Enterprise Value (TEV) of $10 million to $250 million and TEV/Trailing Twelve Months (TTM) Adjusted EBITDA of 3x to 15x.

“Completed deal volume stood at about 80% of the year-ago quarter in Q3,” said GF Data CEO Andrew Greenberg. “This is a big improvement from Q2, when the coronavirus hit with full force and volume fell to about 40% of what it would have been.”

“At the same time,” added Mr. Greenberg, “average valuations eased from 7.4x to 6.7x. We thought that the deals that found the finish line in Q2 reflected a healthy dose of survivorship bias. This was bound to abate as more deals got done in Q3. We are mindful that a handful of sectors experienced no diminution in value, and some categories benefitted from changed dynamics. On balance, we think the “COVID effect” is represented more by a rolling average than by the quarter-to-quarter movement in valuations – in other words, an adjustment of .3x to .4x overall.”

“Debt utilization returned to pre-COVID levels, but debt composition continued to reflect a more cautious environment,” said B. Graeme Frazier, IV, GF Data’s co-founder and principal. “Average total debt bounced back to the 3.8x to 3.9x range after tumbling half a turn in Q2. Senior debt, however, was still tamped down.”

“The pick-up in total debt gave needed relief to sponsors,” added Mr. Frazier. “Average equity share on platform acquisitions in Q2 had surpassed 60 percent. But the restrained senior debt piece means a greater share of average capital structure being picked up by subordinated debt providers – a dynamic we have long associated with challenging or at least discerning market conditions.”

“We saw a rebound in deal flow in Q3 after a marked fall-off in first-half volume,” said Spalding White, a partner at Charleston-based Route 2 Capital Partners. “Our firm closed a transaction late in the third quarter with an established sponsor. That experience supported our pre-COVID thesis that established companies with strong management and free cash flow remain available and viable. The data bears out our impression that the ability to be flexible in filling out the middle of the capital stack is more valuable than ever.”

GF Data provides reliable external information for use in valuing and assessing M&A transactions to private equity firms, investors, lenders, and other users.  The firm collects and publishes proprietary transaction information from private equity groups on a blind and confidential basis.  The pool of active contributors comprises 228 private equity firms, mezzanine groups and other financial sponsors.

Data contributors and other subscribers receive five products: (1) a quarterly report containing high-level valuation, volume and leverage data; (2) a quarterly supplement offering detailed information on debt and capital structure trends; (3) a semi-annual supplement on indemnification cap, escrow and other details; (4) quarterly industry drilldown reports; and (5) continuous access, through GF Data’s secure website, to detailed valuation data organized by NAICS code.

For information on subscribing or on contributing data as a private equity participant, please contact Bob Wegbreit at or 610-616-4607.

© 2020 Private Equity Professional | November 23, 2020