CMF Associates Survey Finds Most PE Firms Avoid Overpaying for Assets, Despite a Competitive Market that Is Driving Up Multiples

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Timeframes for Closing Quality Deals Shrinking

The tempo and tenor of InterGrowth indicates that interest in M&A across a multitude of industries and sizes of middle-market deals will continue through the balance of 2016.

A survey of ACG’s InterGrowth and M&A Source attendees in early May by CMF Associates, private equity’s preferred operating partner for finance and financial leadership, reveals that most middle-market private equity firms are trying to be true to their investment mandate without overpaying for assets.

Despite a highly competitive market with an abundance of capital, 40% of those surveyed said they are negotiating and closing transactions at 7X, with another 25% closing at 8X and 15% closing at 9X. The survey also found that compared to a year ago, the time frame for closings has shrunk, indicating that quality deals are closing faster and the PE groups need to be more deliberate with their decision making.

Survey respondents also said they are optimistic about revenue growth rates within the portfolio, with 40% reporting they expect 10-15% growth this year and nearly 50% expecting 5-10% growth.

“The tempo and tenor of InterGrowth indicates that interest in M&A across a multitude of industries and sizes of middle-market deals will continue through the balance of 2016,” said Thomas Bonney, founder and managing director of CMF. “We particularly heard of funds engaged in discussions around carve-outs and other complex transactions.”

More important than ever to put capital to work quickly

In conversations, it was clear that it is more important than ever to deploy capital early in the investment cycle. Many firms reflected back to the post-recession investment period and noted that lack of invested capital in years one and two after a new fund closing significantly affected their internal rate of return. So while multiples are being driven up, funds cannot wait for purchase price multiples to drop to more comfortable levels. Many agreed that putting money to work, even if stretching on price, is better than not investing at all, particularly for follow-on fund-raising needs.

Four-year comparisons

The attached graphs detail CMF’s Spring 2016 survey results versus survey results from the previous three years.

About CMF Associates

CMF Associates, LLC, private equity’s preferred operating partner for finance and financial leadership, delivers transaction- and transition-focused financial, operational, and human capital solutions to private equity backed portfolio companies. Headquartered in Philadelphia and with offices in Chicago, New York, and Vancouver, CMF’s offering includes interim CFO, COO, and controllership services; M&A advisory including pre-transaction due diligence, carve out services and post- transaction integration; full-time executive search; and deal sourcing. To learn more, visit http://www.cmfassociates.com.

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Contact
Kimberly Kerr
CMF Associates LLC
kkerr(at)cmfassociates(dot)com
215.940.4440

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Steve Rose