QUARTON INTERNATIONAL
North America Middle Market Transaction Update | Q1 2016
Quarton International is a
premier investment banking firm
providing M&A, capital raising,
and related advisory services to
middle-market companies in
North America and Europe.
Quarton International’s principals
have a combined track record of
more than 500 transactions in 30
different countries with a total
transaction value exceeding $15
billion.
Focus Sectors:
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



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Automotive & Diversified
Industrial
Consumer
Retail & E-commerce
Technology, Media &
Telecommunication
Real Estate
Healthcare
Business Services
Seller’s Market Continues into 2016
Valuation Multiples Continue to Climb
Middle market M&A continues to generate high valuations, with enterprise
value/EBITDA multiples averaging 8.2x for 2015, the highest levels since 2007.
Strategic buyers remain positioned with healthy balance sheets and are more
aggressively putting capital to work to achieve growth. Additionally, private equity
firms have substantial dry powder to deploy, creating a highly competitive
environment for transactions.
A lack of organic growth and availability of capital in the market has increased
competition and valuation premiums for attractive businesses. In addition, middle
market leverage multiples surpassed its peak in 2014, with Debt/EBITDA multiples
averaging 3.9x in 2015. GF Data reported the premium paid for businesses in 2015
with above average financial performance increased to 23%, the largest spread
over the past four years. The increased premium is evidence of the high level of
competition amongst buyers for high quality businesses.
Scarcity Value for High Quality Businesses
8.5x
23%
8.0x
5%
7.5x
7.4x
6.9x
6.8x
7.0x
Recent Transactions:
11%
13%
6.3x
6.5x
6.0x
6.0x
6.2x
6.0x
6.0x
5.5x
5.0x
4.5x
has been acquired by
4.0x
2012
2013
Other Buyouts
2014
Buyouts With Above Average Financials
2015
Note: Above average financials are defined as buyouts with TTM EBITDA margins and revenue growth rates both above 10%, or one above
12% and the other metric at least 8%.
Source: GF Data.
Increased Deal Activity Ahead
Tubular Products Business
has been acquired by
After a slow start to the year, activity is beginning to pick-up in the M&A market.
With the recent volatility in the stock market in China, early signs of tightening in the
credit markets and political uncertainty, many sellers that have been contemplating
selling their business over the next year or two are seeking to capitalize on the
favorable market dynamics before conditions change. As a result, we anticipate
deal volume to be robust in Q2 and Q3 this year.
PAGE | 1
North America Middle Market Transaction Update | Q1 2016
Transaction Environment
Deal Volume – Q4 ’15 middle market disclosed transaction
volume (enterprise value between $10 million and $250
million) increased 12% compared to Q3 ’15 and decreased
3% year-over-year. Similar with recent history, 2015
finished the year strong with the highest quarter for middle
market transaction volume, which resulted in annual
volume increasing 4% compared to 2014. We expect the
pace to continue into 2016 as the deal environment
remains highly attractive to buyers and sellers.
Deal Value – Aggregate deal value of middle market
transactions in Q4 ’15 increased 13% sequentially and
decreased 8% year-over-year. The decrease in aggregate
deal value, during a period of increased transaction
volume, signifies an increase in transactions at the lower
end of the middle market. In response to competition
among financial and strategic buyers, we have received
increased interest from buyers for businesses outside of
historical investment parameters.
Transaction Multiples – Middle market enterprise
value/EBITDA multiples decreased slightly from 8.4x in Q3
’15 to 8.3x in Q4 ’15, resulting in transaction multiples
averaging 8.2x in 2015 compared to 7.8x in 2014.
Favorable market conditions and competition for premium
assets supported increased valuation multiples throughout
the year.
Middle Market Average TEV/EBITDA
Transaction Multiples(1)
9.0x
8.2x
8.2x
7.8x
8.0x
7.6x
7.5x
7.2x
7.2x
7.2x
7.0x
5.8x
6.0x
5.0x
4.0x
3.0x
2007
(1)
2008
2009
2010
2011
2012
2013
2014
2015
Transactions between $10 and $250 million with TEV/EBITDA multiples < 15x;
excludes technology, media and telecom
Source: Quarton International Research and S&P Capital IQ
Average Equity Contribution of Middle
Market Transactions (1)
60%
53.3%
49.9%
48.5%
50%
49.8%
49.7%
46.7%
46.6%
43.5%
42.4%
40%
30%
Debt Financing Markets – Lending conditions remained
favorable throughout the year with total debt/EBITDA
multiples averaging 3.9x. Debt multiples surpassed prior
peak levels set in 2014 demonstrating the current favorable
lending environment. We believe leverage multiples are
near peak levels and expect markets to remain favorable in
the near-term, despite recent changes made by The
Federal Reserve.
20%
10%
0%
2007
Middle Market PE Capital Raised
$3.0
S&P 500 Total Cash Balance
5.0x
2010
2011
2012
2013
2014
2015
Senior Debt/EBITDA
Sub Debt/EBITDA
4.5x
$2.5
$35
$30
$2.0
$25
$1.5
$20
$15
$1.0
$10
$0.5
$5
S&P Total Cash Balance ($ in Trillions)
$40
PE Capital Raised ($ in Billions)
2009
Average Credit Statistics of Middle
Market Transactions(1)
Strategic and Financial Capital Availability
$45
2008
(1) Transactions with enterprise values of $10 million to $250 million
Source: GF Data
4.0x
3.7x
3.3x
3.5x
1.0x
3.4x
1.0x
1.1x
0.8x
2.3x
2.4x
2.4x
2.6x
2.7x
2010
2011
2012
2013
2014
2.7x
0.8x
2.5x
3.9x
0.9x
1.0x
1.0x
2.0x
1.5x
3.5x
3.1x
0.9x
3.0x
3.7x
3.4x
2.8x
2.3x
1.0x
3.0x
1.7x
0.5x
0.0x
2007
Source: PitchBook and S&P Capital IQ
Q4 '15
Q3 '15
Q2 '15
Q1 '15
Q4 '14
Q3 '14
Q2 '14
Q1 '14
Q4 '13
Q3 '13
Q2 '13
Q1 '13
Q4 '12
Q3 '12
Q2 '12
Q1 '12
Q4 '11
Q3 '11
Q2 '11
$-
Q1 '11
$-
(1)
2008
2009
2015
Transactions with enterprise values of $10 million to $250 million
Source: GF Data
PAGE | 2
North America Middle Market Transaction Update | Q1 2016
Economic Environment
Gross Domestic Product – Real gross domestic product
grew at an annual rate of 1.0% in Q4 ‘15, according to
Bureau of Economic Analysis (BEA) estimates. The
slowdown in Q4 ‘15, compared to past two quarters, was
primarily attributed to cutbacks in inventory spending as
companies reduced excess supply. The deceleration was
also related to increased imports caused by a strong U.S.
Dollar, and reduced exports as a result of global economic
uncertainty. Although businesses decreased investment
activity for a second straight quarter, the labor market
strengthened and consumer confidence remains high,
providing a positive outlook.
Change in Real Gross Domestic Product
Quarter over Quarter
5%
4.6%
4.3%
3%
3.9%
3.8%
4%
3.0%
2.7%
1.9%
2%
2.1%
1.9%
2.0%
1.1%
1.0%
1%
0.6%
0.5%
0.1%
0%
-1%
-0.9%
Q4 '15
Q3 '15
Q2 '15
Q1 '15
Q4 '14
Q3 '14
Q2 '14
Q1 '14
Q4 '13
Q3 '13
Q2 '13
Q1 '13
Q4 '12
Q3 '12
Q2 '12
Q1 '12
-2%
Consumer Confidence – The Thomson Reuters/University
of Michigan Surveys of Consumers reported that consumer
confidence decreased slightly to 91.7 in February from 92.0
in January. Consumer confidence remains high as personal
finances are benefiting from low inflation and inexpensive
gas prices. Despite increases to disposable income,
consumers are beginning to raise concern related to the
overall economy and recent volatility in the financial
markets.
Source: Bureau of Economic Analysis
Consumer Confidence Index
120
100
94
87 89
84 82 83 82 83 85
80
98
96
95 93 96
93 92
91
87
93 92 92
90 91
80
Employment – Nonfarm payroll employment rose by
151,000 jobs in January, decreasing the unemployment
rate to 4.9%. The most significant increase in jobs came
from the retail sector, followed by increases in the food
services, health care and manufacturing industries. Job
growth was offset by decreases in the private education,
transportation and warehousing sectors.
60
40
20
0
Source: Thomson Reuters/University of Michigan Surveys of Consumers
Average U.S. Conventional Retail Gasoline Prices
Unemployment Rate
7.5%
$4.00
$3.50
$3.00
6.5%
$2.50
$2.00
$1.72
5.5%
4.9%
$1.50
$1.00
Source: U.S. Energy Information Administration
4.5%
Source: Bureau of Labor Statistics
PAGE | 3
North America Middle Market Transaction Update | Q1 2016
Recent Transactions
Tubular Products Business
formed a joint venture with
has been acquired by
has been acquired by
has been acquired by
Medical Device Manufacturer
Provider of Engineered Building
Products
Manufacturer of Electric
Resistance Welded Steel Tubing
Provider of Plumbing Hand Tools
has been acquired by
has been acquired by
has been acquired by
has been acquired by
Building Project Developer
Provider of Vacuum
Impregnation Sealing Solutions
Advisor and Service Provider for
Affordable Housing
Data and Document Management
Software Solutions Provider
Office Locations
Berlin, Germany
Schönhauser Allee 10/11
10119 Berlin
+49 (341) 98 379 0
Detroit, USA
300 Park Street, Suite 480
Birmingham, MI 48009
+1 (248) 594-0400
London, England
Newcombe House, 6th Floor
45 Notting Hill Gate
London W11 3LQ
+44 (207) 243 4764
Graz, Austria
Glacisstraße 27
8010 Graz
+49 (341) 98 379 0
Munich, Germany
Theatinerstrasse 7
80333 Munich
+49 (89) 2000 393 0
Leipzig, Germany
Universitaetsstrasse 14
04109 Leipzig
+49 (341) 98 379 0
Zurich, Switzerland
Winkelwiese 2
8001 Zurich
+41 (44) 265 40 80
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All securities are offered through Quarton Securities L.P., Member FINRA, Member SIPC and the affiliated broker-dealer of Quarton International.
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