Market Report M&A Market Snapshot Q2 2018

Transcription

1 Market Report M&A Market Snapshot Q New York Boston Chicago Orlando Philadelphia Princeton

2 Table of Contents Total U.S. Market Activity Overview... 1 Transaction Multiples... 3 Private Equity Transaction Data... 5 Notable Transactions... 7 About MPI... 9 Page 1

3 Total U.S. Market Activity Overview As shown on the chart below, Q merger and acquisition activity in line with the levels experienced over the prior three quarters. Aggregate dollar volume, which increased 54.6% to $627.8 billion, from Q to Q However, the number of transactions announced decreased approximately 7.8%. from 3,680 to 3,393, over the same period. Activity in the lower middle market (defined herein as transactions with deal values under $100 million) saw a decrease in both deal count and volume when compared to Q Both Q deal count and volume declined to just below reported Q levels, creating a new observed period low of 621 transactions and total dollar volume of $16.6 million. The chart below indicates deal volume decreased by approximately $3.5 billion from Q to Q2 2018, while deal count decreased by approximately 86 deals. Source: S&P Capital IQ Page 1 1

4 Q M&A activity continued to benefit from the Trump Administration s tax reform policies. Higher corporate valuations continued to be subject to greater market volatility in the first half of the year. Following relatively low domestic M&A activity in 2017 and the first half of 2018, it is expected that the number of deals and deal volume will accelerate during the second half of It also appears that acquirers are narrowing the geographic field of potential targets, with fewer looking abroad, thus raising the potential for increased U.S. M&A activity. In addition, lower corporate tax rates, will continue to provide increased capital availability which can then be used to finance acquisitions. It is also important to note that the tax reform bill, introduced at the end of 2017, also includes a cap on the tax deductibility of interest expense. Holding all other factors constant, lower tax shields on interest expense may have a negative impact on highly leveraged transactions. Page 2 2

5 Transaction Multiples The graph below illustrates the quarterly trend in EBITDA and revenue multiples from Q to Q for U.S. transactions in the lower middle market. The median target EBITDA multiple for the lower middle market in Q was 7.5 times, below the longer-term average multiple of 7.7 times. The median revenue multiple for the lower middle market in Q was 1.1 times, equal to the average multiple observed. Median EV / EBITDA Multiples ($0 < Deal Value < $100 mm (USD)) EBITDA (x) Revenue (x) 14.0x 2.5x EBITDA (x) 12.0x 10.0x 8.0x 6.0x 4.0x 2.0x 2.0x 1.5x 1.0x 0.5x Revenue (x) 0.0x 0.0x The graph below illustrates the rolling 12-month quarterly trend in EBITDA and revenue multiples from Q to Q for U.S. transactions in the lower middle market. The rolling 12-month Q lower middle market EBITDA multiple was 7.2 times, below the average of 7.7 times for the observed period and the rolling 12-month multiple observed during the prior quarter of 7.6 times. The rolling 12- month Q lower middle market revenue multiple was 1.1 times, equal to the average for the observed period and the rolling average multiples observed during the prior four quarters. Rolling 12 Month Median EV / EBITDA Multiples ($0 < Deal Value < $100 mm (USD)) EBITDA (x) Revenue (x) EBITDA (x) 10.0x 9.0x 8.0x 7.0x 6.0x 5.0x 4.0x 3.0x 2.0x 1.0x 0.0x 2.5x 2.0x 1.5x 1.0x 0.5x 0.0x Revenue (x) Source: S&P Capital IQ Page 3 3

6 It is important to note that changes in average deal multiples are significantly influenced by activity within industry groups (and size ranges, which will be discussed in the private equity commentary in the next section), each of which face unique growth dynamics and multiples profiles. To that end, a drop in the median deal multiple is not necessarily reflective of a weakened pricing environment, as valuations across most industry sectors remains high. Page 4 4

7 Private Equity Transaction Data The following chart presents historical EBITDA multiples paid in private equity deals from 2014 to Q2 2018, as reported to GF Data. Smaller deals (i.e., those with enterprise values between $10 million and $25 million) were generally completed at multiples ranging from 5.5 times to 6.4 times EBITDA during the observed period. In contrast, EBITDA multiples for larger deals (those with enterprise values between $100 million and $250 million) were generally completed at multiples between 7.5 times and 9.2 times. The chart below stratifies observed transaction data by size of EBITDA. As expected, targets with lower EBITDA levels generally garnered lower deal multiples. From 2014 to Q2 2018, targets with EBITDA of $10 million or less were typically valued at an average of 6.9 times, below the 7.5 times average for targets with EBITDA greater than $10 million. Source: GF Data Page 5 5

8 Private Equity Transaction Data (continued) The chart below presents lending multiples for all middle market private equity leveraged transactions reported to GF Data. Buyout financing provided by traditional banks expanded from 2014 (2.6 times) to 2017 (3.4 times), before experiencing a slight decrease during the first half of 2018 (3.3 times). Nonbank financing (typically, subordinated or mezzanine debt) vacillated between 0.8 times and 1.0 times EBITDA from 2014 to Q Average total leverage was observed at 4.1 times EBITDA during the first half of 2018, slightly below the average total leverage of 4.2 times EBITDA experienced in Due to relatively low interest rates and the increased availability of leverage, the average contribution made by equity sponsors has decreased overall during the observed period. The average equity contribution during the first half of 2018 was 44.1% of total transaction value, down from 44.6% in 2017 and 45.6% in Equity and Debt Contribution by Year 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 45.6% 42.8% 44.6% 44.6% 44.1% 15.2% 13.9% 11.9% 10.5% 10.5% 39.2% 43.4% 43.5% 44.9% 45.4% YTD 2018 Bank Debt Non-Bank Debt Equity Source: GF Data Page 6 6

9 Notable Transactions In April of 2018, T-Mobile US, Inc. ( T-Mobile ) announced it would acquire Sprint Corporation ( Sprint ), for an implied enterprise value of approximately $58.5 billion in an all stock deal. Sprint stockholders would receive approximately 0.10 shares of T-Mobile for each Sprint share. The acquisition that would combine the third and fourth largest U.S. wireless carriers follows merger talks from 2014 that were halted by antitrust concerns from the Obama administration. T-Mobile anticipates the acquisition will provide the means to accommodate their investment in 5G technology and compete with their larger competitors, Verizon Communications, Inc. and AT&T Inc. Not only is the deal expected to benefit the companies involved, the combination is also expected to create thousands of American jobs due to the planned $40 billion investment in the next-generation 5G network. S&P Capital IQ reports the deal valued at approximately 5.3 times next twelve-month EBITDA and approximately 1.9 times next twelve-month revenue. In late April of 2018, Marathon Petroleum Corporation ( Marathon ) entered into a definitive merger agreement to acquire Andeavor, for an implied enterprise value of approximately $23.3 billion. According to the agreement, the deal would give Andeavor shareholders the option of receiving 1.87 shares of Marathon stock, or $ in cash, per Andeavor share, representing a 24% premium. If the deal closes, it is anticipated that Andeavor shareholders will own approximately 34% of the combined company. The deal would make the combined company the largest oil refiner in the United States, processing 16% of the nation s total capacity, and comes at a time where oil prices have started to rebound. Additionally, the deal would create a network of approximately 12,000 retail and marketing locations throughout the United States, which is expected to generate synergies of over $200 million. S&P Capital IQ reports the deal valued at approximately 9.7 times next twelve-month EBITDA and approximately 0.8 times next twelve-month revenue. In May of 2018 Elliott Management Corporation ( Elliott ) made an unsolicited proposal to acquire the remaining 98.56% stake, that it does not already own, in athenahealth, Inc ( Athena ), for an implied enterprise value of approximately $6.9 billion. According to the proposal, the deal would be all cash, and Elliott would pay $160 per Athena share. The $160 per share purchase price represents a 27% premium over Athena s closing price just before the deal was announced. Elliott has criticized Athena for having a host of operational issues and believes going private is the best option for the company. Seeing as the bid was unsolicited, Athena s board of directors must review the offer and if it is something they believe Athena should pursue, more due diligence will be required at the request of Elliott. S&P Capital IQ reports the deal valued at approximately 18.7 times next twelve-month EBITDA and approximately 4.9 times next twelve-month revenue. Page 7 7

10 In June of 2018 Comcast Corporation ( Comcast ) made a proposal to acquire the remaining 99.9% stake in Twenty-First Century Fox ( Fox ), for an implied enterprise value of approximately $80 billion. Structured as an all cash deal, Fox shareholders would receive $35 per share. The offer comes as a counter to that of The Walt Disney Corporation ( Disney ), which had offered stock consideration of Disney shares per share of Fox, valuing the company at $28 per share. Completion of the deal would give Comcast assets in several different industries, and includes the movie studio 20 th Century Fox, and the cable networks FX and Discovery. Additionally, Comcast would gain a stake in Sky TV, as well as a 30% stake in Hulu, making the company the majority shareholder in the streaming service. Not included in the deal are Fox Broadcasting, Fox News, and Fox Sports. These networks are planned to be spun-off into a new company called New Fox upon completion of the deal. S&P Capital IQ reports the deal valued at approximately 10.7 times next twelve-month EBITDA and approximately 2.5 times next twelve-month revenue. In late June of 2018 Conagra Brands, Inc. ( Conagra ) entered into an agreement to acquire Pinnacle Foods, Inc. ( Pinnacle ), for an implied enterprise value of approximately $10.9 billion. The deal will be structured as a cash and stock deal, with Pinnacle shareholders receiving $43.11 in cash and shares of Conagra common stock per share of Pinnacle stock. If the deal closes, it is estimated that Pinnacle shareholders will own approximately 16% of the combined company. The deal would make Conagra the number two U.S. frozen food maker by revenue, behind rival Nestle S.A. Conagra believes the merger will help its supply chain costs and ultimately save the company approximately $215 million by the end of S&P Capital IQ reports the deal valued at approximately 15.4 times next twelve-month EBITDA and approximately 3.4 times next twelve-month revenue. Sources: S&P Capital IQ, Press Releases, Business Wire, PR Newswire, Bloomberg, Reuters, CNBC Page 8 8

11 About MPI Management Planning Inc., a prestigious national consulting firm founded in 1939, specializes in business valuation, forensic accounting, litigation support and corporate advisory work. MPI provides fairness opinions, sell-side and buy-side advisory services through its investment banking affiliate MPI Securities, Inc. MPI conducts every project as if it is going to face the highest level of scrutiny, and its senior professionals have extensive experience presenting and defending work product in front of financial statement auditors, management teams, corporate boards and fiduciaries, the IRS, other government agencies, and in various courts. For additional information pertaining to MPI and our valuation, forensic accounting, advisory and litigation support services, visit Contacts For This Report: Daniel M. Kerrigan, CFA, ASA President (609) dkerrigan@mpival.com Tracey M. Jasey Partner (267) tjasey@mpival.com DISCLAIMERS: The information provided in this publication is only general in nature. It has been prepared without taking into account any specific objectives, financial circumstances or needs. Accordingly, MPI disclaims any and all guarantees, undertakings and warranties, expressed or implied, and shall not be liable for any loss or damage whatsoever (including human or computer error, negligent or otherwise, or actual, incidental, consequential or any other loss or damage) arising out of or in connection with any use or reliance upon the information or advice contained within this publication. The viewer must accept sole responsibility associated with the use of the material in this publication, irrespective of the purpose for which such use or results are applied. This material should not be viewed as advice or recommendations. This information is not intended to, and should not, form a primary basis for any investment, valuation or other decisions. MPI is not acting as a fiduciary, an expert or advisor in any capacity whatsoever in providing the information set forth herein. The information set forth herein may not be relied upon and is not a substitute for competent legal and financial advice. The viewer of this material is cautioned and advised to consult with his or her own legal and financial counsel in evaluating the information provided herein. Information provided by GF Data is proprietary and may not be used in work product or any other form without written consent of GF Data or MPI. All other information provided in this publication is based on public information. MPI makes every effort to use reliable and comprehensive information, but makes no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the information provided herein and MPI shall not have liability for any damages of any kind relating to any reliance on such data. Further, the information set forth herein is continuously subject to change and may fluctuate. MPI has no obligation to update the information set forth herein or to advise the viewer when opinions or information may change. Investment banking and transaction advisory services are provided by MPI Securities, Inc., member FINRA/SIPC. Persons affiliated with MPI Securities, Inc. are registered representatives of and securities are offered through MPI Securities, Inc. This publication is not a solicitation or offer to buy or sell securities. The information contained in this publication was prepared for information purposes only and was not intended or written to be used as investment or tax advice or as a recommendation to buy or sell securities. Page 9 9