news from the middle deal perspectives for middle market companies and their advisors

Transcription

1 B O S T O N C H I C A G O L O S A N G E L E S P H I L A D E L P H I A news from the middle deal perspectives for middle market companies and their advisors Q1 212 MERGERS & ACQUISITIONS PRIVATE PLACEMENTS CORPORATE RESTRUCTURING VALUATION ADVISORY The Middle Market is Open for Business As we look out over the horizon, we are optimistic about the prospects for middle-market business owners who may be considering a liquidity event. Our optimism is based on the fact that the current merger & acquisition market is supported by strong fundamentals, including: MERCHANT BANKING an abundance of cash in the hands of corporate buyers; a large overhang of cash that needs to be deployed by the private equity community; commercial lenders who are continuing to loosen their purse strings; continued low interest rates; and an improving economy. Given the market environment, it is not surprising that a look back at 211 activity shows middle market transactions continued to get done, exceeding the number of 21 transactions by 2.9%. Although a small increase, it is nonetheless notable given that it extends the large gain 37% recorded in 21 and signifies a long-awaited stabilization of the market. Middle-Market 12, 1, 211 Market Stabilizes 1 21 Market Rebounds 8, 6, 4, 2,, Enterprise Value < $25mm 212 Capstone Partners LLC. All rights reserved.

2 news from the middle M&A perspective Strong Fundamentals Support Market Positive market fundamentals, such as the following, are supporting a strong M&A market for middlemarket companies: Corporate Buyers Flush with Cash: The Federal Reserve estimates that non-financial corporations have close to $2 trillion in cash on their balance sheets, the highest level on record. Corporations need to put this cash to work, especially in today s near-zero-interestrate environment. At the same time, shareholders are pressuring corporations to grow and build market share, fueling strong M&A interest among corporate buyers. Private Equity Overfunded: The private equity market has an estimated $4 billion - $45 billion of committed capital to deploy. These buyers remain very active in the middle market, especially with regards to add-on acquisitions. While the private equity fundraising environment remains challenging, we believe that fundraising is rightsizing, as these buyers continue to work off an excessive capital overhang. Potential Tax Increases: Many business owners who are considering a sale or retirement in the coming years are accelerating their timeline to account for the likelihood of rising tax rates in 213. Such owners are entering the market this year in the hopes of transacting a sale in advance of tax rate hikes. Confidence in the Economy: Perhaps the biggest boost to M&A will come from continued confidence in the U.S. economy. Economists seem optimistic about our chances of avoiding a double-dip recession and many are now espousing a double-gain recovery when housing, durables, and government spending eventually recover. For now, the economy is growing slowly and employment is inching up. Lending Unleashed: The debt market has thawed and debt multiples are continuing to rise. At the same time, interest rates remain at historical lows, allowing M&A deals to get completed at higher valuations. Foreign Acquirers Active: While economic storm clouds are certainly brewing abroad, middlemarket companies continue to attract the interest of foreign buyers and the U.S. remains the most favored destination for foreign direct investment. Attracted by a large and wealthy consumer market, ease of doing business, a skilled labor force and world-class technology skills and capabilities, U.S. companies remain sought-after targets for foreign buyers. 212 Outlook: Cautiously Optimistic Based on these positive market indicators, Capstone is optimistic about M&A activity in 212. We recognize that the market is continuing its recovery, but we believe that conditions have stabilized, making for a healthy environment for transactions. Valuations Improving: Driven in part by increased competition among more aggressive acquirers, deal multiples improved in 211and are up considerably from recent lows. With an improved market and a likely increase in corporate and personal tax rates on the horizon, we encourage business owners to consider whether this may be an opportune time to implement their exit plan vis-à-vis a full or partial business sale. 2

3 news from the middle M&A snapshot M&A ACTIVITY 4, 3,5 3, The number of middlemarket M&A deals stabilized in 211 after rebounding in 21. 2,5 2, 1,5 1, 5 Enterprise Value < $25mm or undisclosed Q1 '6 Q2 '6 Q3 '6 Q4 '6 Q1 '7 Q2 '7 Q3 '7 Q4 '7 Q1 '8 Q2 '8 Q3 '8 Q4 '8 Q1 '9 Q2 '9 Q3 '9 Q4 '9 Q1 '1 Q2 '1 Q3 '1 Q4 '1 Q1 '11 Q2 '11 Q3 '11 Q4 '11 AVERAGE MIDDLE MARKET ENTERPRISE VALUE/EBITDA Deal multiples continue to improve, largely driven by more aggressive buyers and an improvement in the availability of debt financing. Enterprise Value / EBITDA 1.x 9.x 8.x 7.x 6.x 5.x 4.x 3.x 2.x 1.x.x 7.4x 7.3x 6.8x 6.7x 7.2x 7.4x 7.8x 7.6x 7.7x 7.5x 7.4x 7.6x 6.8x Includes multiples 3x-12x Enterprise Value < $25mm AVERAGE ENTERPRISE VALUE/EBITDA BY TRANSACTION SIZE 1.x 9.x 8.x Larger companies continue to command higher deal multiples, as buyers reward scale and segment leadership. Enterprise Value / EBITDA 7.x 6.x 5.x 4.x 3.x 2.x 1.x.x Includes multiples 3x-12x Enterprise Value <$1mm Enterprise Value $1-1mm Enterprise Value $1-25mm 3

4 news from the middle M&A snapshot CORPORATE BUYER ACTIVITY 1, 9, 8, 7, Strategic acquisitions by corporate buyers have surpassed old records as corporations move to invest excess cash. 6, 5, 4, 3, 2, 1, Enterprise Value < $25mm or undisclosed PRIVATE EQUITY ACTIVITY Private equity activity slowed in the second half of 211 due to macro economic uncertainty; however, strong fundamentals remain in place, which should support higher activity levels in ,6 1,4 1,2 1, ,344 1,1 1,17 1, PRIVATE EQUITY MULTIPLES Private equity transaction multiples have returned to pre-recession levels as access to debt has improved. Enterprise Value / EBITDA 7.x 6.8x 6.6x 6.4x 6.2x 6.x 5.8x 5.6x 5.4x 5.2x 6.2x 6.1x 6.x 6.x 6.x 5.9x Source: GF Data Resources 4

5 news from the middle M&A news LOWER MIDDLE MARKET DEAL OF THE YEAR MIDDLE MARKET FINANCING DEAL OF THE YEAR AMERICAS M&A ATLAS AWARDS 211 WINNER US-CANADIAN DEAL OF THE YEAR Capstone Partners LLC Wins Coveted M&A Awards Capstone Partners was the proud recipient of several M&A awards in 211. Capstone was awarded the Lower Middle Market Deal of the Year and Middle Market Financing Deal of the Year bythem&a Advisor, as well as the US-Canadian Deal of the Year by the Global M&A Network s Atlas Awards. Capstone was recognized for its achievements in middle market investment banking and particularly for its work on several outstanding transactions. In addition, the Firm was named as an award finalist for 14 awards throughout the year. We are proud to be recognized as a winner and finalist for so many awards this year, said John Ferrara, Capstone s President and Managing Partner. This recognition is reflective of the ingenuity, perseverance, creativity and resourcefulness required to successfully close transactions. It underscores the professionalism of Capstone s bankers and our deep commitment to our clients. These honors illustrate the firm s ongoing growth and success in middle market investment banking. M&A ADVISOR AWARDS 211 FINALIST Boutique Investment Bank of the Year Lower Middle Market Deal of the Year (3 finalist transactions) Industrial Manufacturing/Distribution Deal of the Year (2 finalist transactions) Media, Entertainment or Telecom Deal of the Year Consumer & Retail Products Deal of the Year AMERICAS M&A ATLAS AWARDS 211 FINALIST North America M&A Deal of the Year US M&A Deal of the Year Pharma, Devices & Services Deal of the Year Consumer Retail & Services Deal of the Year INTERNATIONAL M&A AWARDS 211 FINALIST International M&A Deal of the Year Consumer & Retail Deal of the Year 5

6 built for the middle market ABOUT CAPSTONE PARTNERS Capstone Partners LLC is a leading national investment banking firm dedicated to serving the corporate finance needs of middle market business owners, investors and creditors. The firm provides merger & acquisition, private placement, corporate restructuring, valuation and financial advisory services. Capstone maintains various industry specialties including business services, consumer products, education & training, government & defense, health & medical, manufacturing & industrial, and technology & media. The firm also possesses merchant banking capabilities to actively co-invest in transactions. Additional information about Capstone Partners can be found at NATIONAL AND REGIONAL LEADERSHIP TEAM NATIONAL NORTHEAST REGION CORPORATE RESTRUCTURING John Ferrara Kevin Jolley Brian Davies President, Managing Partner (617) (617) (617) jferrara@capstonellc.com kjolley@capstonellc.com bdavies@capstonellc.com MIDATLANTIC REGION VALUATION ADVISORY Eric Williams Ron Adams (215) (617) ewilliams@capstonellc.com radams@capstonellc.com MIDWEST REGION Ted Polk (312) tpolk@capstonellc.com WESTERN REGION David Bench (949) dbench@capstonellc.com Capstone Partners Investment Banking Advisors