High prices and the lack of M&A deals is frustrating some private equity executives and bankers who attended Buyouts’ PartnerConnect East conference.
“There is a pause in the M&A market,” said David Brackett, managing partner and co-CEO of Antares Capital. “I expected more M&A right now.”
Brackett, who spoke March 22 on the panel “The Latest on Debt Markets: Sponsor Funds, Shadow Banking and more,” said the fourth quarter was strong and 2017 had everything coming to alignment, including very liquid credit markets.
“I thought it would be a fairly robust year with M&A up 10 to 15 percent,” Brackett said. “We haven’t seen the pipeline reload.”
PE-backed M&A volume is off 19 percent so far in the first quarter, preliminary data from Thomson Reuters shows.
As of March 23, 144 U.S. PE mergers totaling $13.44 billion have been announced, compared with 149 LBOs valued at $16.66 billion in the year-earlier period. The biggest U.S. deal so far this quarter is Blackstone‘s buy of AON‘s employee-benefits-outsourcing business for $4.8 billion.
Brackett noted that many new asset managers are on the scene. The current environment “is as competitive of a market as I can remember for a long, long time,” Brackett said.
In 2015, Canada Pension Plan Investment Board acquired Antares, the biggest middle-market lender, in a $12 billion transaction. CPPIB in November sold a 16 percent stake in Antares to Northleaf Capital Partners. “CPPIB is not looking to flip us,” Brackett said.
Robert Horak, managing director at Lincoln International, said during the panel that year-to-date pitching activity was flat compared with last year. “But awarded sell-side mandates are up close to 40 percent as opposed to last year. … I’m more confident moving forward and overall I think we will see more deals coming to market.”
Horak also agreed that the market is seeing many new lenders and lots of new players.
Brennan Libbey, a partner at Livingstone Partners, said the pause in M&A started as 2017 began. Libbey, who spoke later in the day on the panel “Technology Deal Fest: Saas, IoT and Other Trends Impacting Deal Flow,” said the current M&A market has “tons of capital, debt is cheap, and strategics are starting to awaken.”
“The M&A market through the end of the year will be strong,” he said.
PE firms, Libbey said, “are holding their noses” because of high M&A prices. Firms are investing in deals because of how much money they have. Bain & Co in February said that dry powder has hit $1.5 trillion across all PE funds globally. PE firms “have to put this money to work or give it back to the LPs,” Libbey said. “And some have given it back.”
Scott Galletti, managing director of Tenex Capital Management, said the high M&A prices make him feel the way he did in 2007, which is considered a boom time for PE. Purchase-price multiples for buyouts rose to an average of 10.9x EBITDA for U.S. deals in the third quarter from 10.1x late in 2015, Bain & Co said.
“I can’t get a meeting unless I bid 9x,” said Galletti, who spoke on the panel “Opportunities and Risks in the Overall Landscape for Dealmaking.”
Action Item: To contact David Brackett, co-CEO of Antares, email him at email@example.com
Sarah Pringle contributed to this report
Photo courtesy Michael Blann/DigitalVision/Getty Images