Prices eased for mid-market buyouts in the third quarter, and credit conditions eased a tad, sister magazine Buyouts reported, citing S&P Capital IQ Leveraged Commentary & Data. Equity contributions remained high by historical standards.
Purchase price multiples were higher for large deals, and credit was even easier to get, according to the quarterly buyout review by LCD, the loan monitoring unit of credit rating agency Standard & Poor’s Financial Services. LCD defines the mid-market as companies with less than $50 million of EBITDA.
The all-in multiple for third quarter mid-market deals was 7.2x EBITDA, with sponsors contributing 3.2x EBITDA to fund the equity portion of the transactions, actually greater than the senior debt, which was 2.9x EBITDA. But with mezzanine expanding to 1.1x EBITDA, the total equity contribution eased slightly, to 42.5 percent, compared to the second quarter.
In the second quarter, equity contributions hit 45.6 percent, briefly topping the previous all-time highs set in 2009 during the depths of the financial crisis. Total cost of deals in the second quarter was 8.3x EBITDA, with sponsors paying 3.9x EBITDA with equity, 3.8x EBITDA of senior debt and 0.74x EBITDA subordinated debt.
A year ago, in the third quarter of 2011, mid-market sponsors paid 8.9x EBITDA to complete their transactions, including 4.2x EBITDA of equity, 4.0x EBITDA of senior debt and 0.6x EBITDA of sub debt. That put equity contributions at 40 percent of the purchase price.
For large corporate deals third quarter, sponsors paid 9.6x EBITDA, including 3.6x in equity and 5.8x in senior debt, with sub debt providing a scant 0.1x of the price. The equity contribution was 34.6 percent.
That was higher sequentially from the 7.9x EBITDA that sponsors paid in the second quarter, when the equity was almost 3x of equity, 4.77x of senior debt and 0.12x EBITDA of subordinated debt. Sponsor contributions accounted for 35.9 percent of the purchase price multiple.
But it was lower than the 10.1x EBITDA that sponsors paid in the third quarter of 2011, when sponsors put in 3.7x of equity backed up with 5.2x of senior debt and 0.4x of sub debt. Expenses and other costs of 0.7x made up the difference. The equity contribution then was 38.9 percent for large deals.
Overall in the third quarter, and tilted by the large transactions, purchase price multiples were 9.1x EBITDA, with equity covering 3.5x of the cost, senior debt 5.2x and sub debt 0.3x. Equity contributions overall were 36.3 percent.
Steve Bills is a senior editor at Buyouts Magazine. Any opinions expressed here are entirely his own. Follow him on Twitter @Steve_Bills. Follow Buyouts tweets @Buyouts. For information on how to subscribe, contact Greg Winterton at [email protected].
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