3q 2016 - hilco global

3Q 2016

DEAL VOLUME DIVES AGAIN AS BLOCKBUSTERS DRIVE DEAL VALUE PG 5

M&A by deal size & sector

PG 8

IT & energy spotlights

PGs 12-13

3Q league tablesPG 16

S P O N S O R E D B Y

V A L U A T I O N | M O N E T I Z A T I O N | A D V I S O R Y hilcoglobal.com

The Hilco Global platform offers innovative services and capital solutions to help facilitate successful M&A transactions, create liquidity and enhance the value of portfolio companies.

Our vast and deep understanding of business asset values, our appetite for acquiring assets across a broad spectrum, and our proven ability to optimize the value of unwanted assets, enables Hilco Global to deliver the right strategic solutions for private equity firms and hedge funds. We are truly invested in your success.

Connect with Gary Epstein, CMO/EVP 847.418.2712 or [email protected]

Credits & ContactPitchBook Data, Inc.

JOHN GABBERT Founder, CEO

ADLEY BOWDEN Vice President,

Market Development & Analysis

ContentNIZAR TARHUNI Senior Analyst

DYLAN COX Analyst

BRYAN HANSON Data Analyst

JENNIFER SAM Senior Graphic Designer

Contact PitchBook pitchbook.com

RESEARCH

[email protected]

EDITORIAL

[email protected]

SALES

[email protected]

COPYRIGHT © 2016 by PitchBook Data, Inc. All rights reserved. No part of this publication may be reproduced in any form or by any means—graphic, electronic, or mechanical, including photocopying, recording, taping, and information storage and retrieval systems—without the express written permission of PitchBook Data, Inc. Contents are based on information from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Nothing herein should be construed as any past, current or future recommendation to buy or sell any security or an offer to sell, or a solicitation of an offer to buy any security. This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to be relied upon as such or used in substitution for the exercise of independent judgment.

Introduction 4

Overview 5-7

M&A by Sector & Size 8

Q&A: Hilco Global 9-10

Spotlight: B2C 11

Spotlight: IT 12

Spotlight: Energy 13

Private Equity 14-15

3Q 2016 League Tables 16

Contents

3 PITCHBOOK 3Q 2016 M&A REPORT

L ARGER CORPORATE ACCQUISITIONS BUT TRESS DE AL VALUEOverview

Volume of completed transactions saw another steep plunge

M&A activity

Corporate acquisitions leap in size

Median transaction size ($M) by transaction type

Source: PitchBook

Source: PitchBook

Global M&A seemed to have peaked

in 2015 when we saw record deal

flow, higher valuations and companies

looking to scratch out a little bit of

growth in any way they could. Since

then, the number of deals coming to

market has slowed considerably while

the value of those deals continues to

grow. In the face of macroeconomic

and political uncertainty, but armed

with plenty of excess cash on the

balance sheet, corporate acquirers

are chasing larger companies, paying

higher multiples, and putting up more

equity to complete transactions.

Over 3,000 deals were completed in

3Q 2016, representing a stark decrease

from previous quarters. Typically,

our datasets tend to inch higher as

we continue to collect retrospective

data, yet the trend is still clear: Deal

flow has slowed considerably each of

the last three quarters. As the M&A

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

2013 2014 2015 2016

Acquisition Add-On Platform Buyout

$165

$226

$274

$242

$187

$404

$265

$256

$259

$308

$253

$363

$204

$346

$293

$382

$327

$362

$435

$529

$581

$457

$496

$526

$572

$645

$465

3,677

3,286

4,761

4,259

4,707 4,430 4,593 4,648

5,556 5,3155,956 5,899 5,472

3,134

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

2010 2011 2012 2013 2014 2015 2016

Deal Value ($B) Deal Count


Median deal size over $200M

Average & median deal size ($M)

Source: PitchBook

Source: PitchBook

Debt usage slides again

Median debt & equity percentages of M&A

cycle continues to wind down, there

are fewer quality companies coming

to market, but the ones that do show

up tend to be sought after more and

are commanding outsized multiples.

Thus, aggregate deal value remains

high despite the slowdown. While the

value of M&A deals decreased quarter

over quarter (QoQ) in 3Q, the first

three quarters combined have seen

$1.7 trillion in activity, which represents

a 9.7% increase over the same period

last year. This value is increasingly

made up of transactions with EVs of

over $1 billion, which accounted for

81% of deal value in 3Q 2016.

To date, 2016 has been the year of

the mega-deal. Led by InBev’s $113

billion acquisition of SABMiller and

Charter Communications’ $79 billion

acquisition of Time Warner Cable, a

total of 31 deals with an EV of at least

$10 billion have closed through the

third quarter. That is more than the

entirety of 2015, which saw 23 deals

of that size, or 2014, which had just 16

deals over the $10 billion threshold.

3Q 2016 alone saw eight of these

mega-deals, the most prominent of

which was the $60 billion take-private

of technology company EMC by Dell,

whose financial sponsors included

Silver Lake and MSD Capital. Most

recently, but definitely not least, AT&T

is looking to acquire Time Warner for

$85.4 billion.

Along with these blockbuster deals

comes a corresponding rise in deal

size across global M&A. Median deal

size more than doubled QoQ to

$210 million. Interestingly, strategic

acquisitions represented the only deal

type we feature in this report that

jumped on a QoQ basis. The median

deal size of such transactions climbed

to $42 million in 3Q, up from $26

million in 2Q.

As the average deal size rises, debt

usage on those deals has done

quite the opposite. Median debt as a

percentage of EV fell to 46.9% in 3Q

2016, representing the third quarter in

a row that debt percentage has been

under 50%. Prior to this year, we had

experienced three consecutive years in

which no quarter had a reported debt

usage of less than 50%. Consequently,

acquirers are having to provide more

cash and stock to complete these

transactions than at any time in the last

few years. Despite the current low-

interest-rate environment, borrowers

and lenders are not able to realistically

pencil out the same percentage of

debt to EV given lofty valuations and

sluggish earnings growth. Additionally,

the prevalence of bolt-on strategies

in recent years along with increased

concern around the current state of

the business cycle could be causing

companies to be more conservative

with their capital structures in case

they are in need of future debt

financing—either to stay solvent in

tougher times or to make a quick

acquisition if the opportunity arises.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


2013 2014 2015 2016Debt % Equity %

$22

$25

$25

$32

$30

$31

$35

$42

$33

$28

$35

$33

$132

$85

$207

$335

$256 $3

04

$274

$268 $3

14

$412

$430

$365

$364

$306

$587

$866

$210


2013 2014 2015 2016

Median Average


Transaction multiples

Source: PitchBook. Note: Any discrepancy between total valuation and debt/equity figures is due to rounding.

3.4x 3.9x 4.

6x

4.1x

3.9x 5.

1x

4.9x

4.3x

3.8x 4.3x 4.7x

4.2x 4.7x

4.2x 4.6x

4.6x 5.

3x 5.8x

4.1x 5.

0x

4.3x 4.8x 5.0x 5.5x

4.6x

4.3x 4.7x

4.2x

2.9x

3.6x

3.7x

4.0x

3.6x

3.9x

3.6x

3.9x 3.4x 3.

7x

3.2x 2.

9x

2.7x 3.

6x 4.0x 3.

9x

2.5x

4.1x 3.

8x

4.3x

3.6x 4.

4x 3.9x

4.6x

4.8x 5.

3x

7.6x8.3x 7.9x

8.8x

7.7x8.4x

7.6x8.2x

9.2x

8.1x8.7x

9.4x 9.2x10.0x


2010 2011 2012 2013 2014 2015 2016Debt/EBITDA Equity/EBITDA Valuation/EBITDA

M&A activity in EuropeM&A activity in North America

$139

$167

$168

$276

$210

$238

$263

$369

$347

$317

$342

$389

$382

$393

$328

2,284

2,466

3,029 2,9643,245 3,174

2,807

1,813


2013 2014 2015 2016

Deal Value ($B)

Deal Count

Source:

PitchBook

$65

$179

$124

$106

$117

$124

$172

$160

$234

$140

$155

$137

$190

$252

$138

2,309

2,182

2,527

2,351

2,711 2,725 2,665

1,321


2013 2014 2015 2016


Source: PitchBook

Turning now to transaction multiples,

median EV-to-EBITDA figures in the

third quarter jumped to 10.0x, up from

9.1x in 2Q, and the highest tally in at

least the last five years. Some of this

change, however, can be attributed

to the size of deals coming to market.

In 3Q 2016, 17.5% of completed

transactions had an EV in excess of

$250 million, compared to 15.3% in 2Q

and between 13% and 14% during the

entirety of 2015.

While some of the recent price

increases can be attributed to the

change in the size of companies

coming to market, we continue to see

more buyers than sellers in the market,

resulting in elevated prices. Further,

the premiums buyers must pay to

appeal to the large shareholder bases

of publicly traded companies should

also be noted. The recent Marriott

acquisition of Starwood Hotels and

Resorts, which closed in September,

was drawn out by a rather dramatic

bidding war between Marriott and

Anbang Insurance Group, who was

backed by J.C. Flowers & Co and

Primavera Capital Group. Similarly,

the price that Microsoft has agreed to

pay for LinkedIn, a deal announced in

June but not yet closed, was hiked by

interest from Salesforce and others.

These deals exemplify the increased

competition we’ve seen lately between

acquirers, both strategic and financial.

With record amounts of cash on

corporate balance sheets and similarly

high levels of dry powder in PE funds,

there is simply too much capital to be

deployed across too few companies.


M&A activity ($B) by sector

M&A deals ($B) by deal size

M&A activity (#) by sector

M&A deals (#) by deal size

Source: PitchBook

The percentage of deal value in transactions with EV of at least $1 billion remains historically high: 81% in 3Q 2016.

IT deal value accounted for 30% of all M&A in the third quarter.

OVERALL VOLUME DROP SM&A by sector & size

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


2013 2014 2015 2016

$5B+

$1B-$5B

$500M-$1B

$250M-$500M

$100M-$250M

Under$100M

Source: PitchBook

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


2013 2014 2015 2016

Materials &Resources

IT

Healthcare

FinancialServices

Energy

B2C

B2B

Source: PitchBook

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


2013 2014 2015 2016

Materials &Resources

IT

Healthcare

FinancialServices

Energy

B2C

B2B

Source: PitchBook

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


2013 2014 2015 2016

$5B+

$1B-$5B

$500M-$1B

$250M-$500M

$100M-$250M

Under$100M


Given the recent slowdown in M&A

transactions, what impediments to

dealmaking do you come across most

frequently?

Overall market conditions remain

reasonably strong for a continued

healthy dealmaking environment as we

head into the fourth quarter of 2016

and fiscal year 2017. Companies will

continue to seek ways to supplement

slow organic growth by actively

hunting for solid M&A opportunities

that can improve margins and

take advantage of potential sector

synergies. These factors, combined

with the availability of relatively low-

cost capital to finance the deals, are

just some of the key forces behind

a continued desire to execute M&A

transactions as a vehicle for growth

and expansion.

That said, there is little doubt that

significant challenges exist in today’s

complex global M&A marketplace that

are making it more difficult to find and

close transactions. Among the many

impediments that have slowed the

rate of M&A deals this year we have

identified several which we have seen

frequently:

• Recognition that a broader

range of deal structures brings

new complexity and cost to

the completion of a deal. While

creativity and thought leadership

in the capital markets are

meant to be enablers of closing

transactions, an unintended

consequence is that the market

remains over-served at all levels.

Hilco Global

There is a glut of capital chasing

deals, bid/ask spreads are wide,

financial institutions are trying

to stretch within regulatory

boundaries to win mandates, and

professional service providers

and advisors are competing

very aggressively. Due to

increased uncertainty in winning

a deal, the upfront investment

is materially more significant

for all stakeholders. Such high

investment, coupled with relatively

low deal conversion, has led to

a significant level of sunk costs

resulting in a less productive

marketplace.

• Investors have realized that the

benefits of integration of assets

outside of a company’s traditional

core segment have become less

tangible and clear. Financial

markets are more skeptical that

M&A deals will deliver on their

stated strategic and financial

objectives. This sentiment has

generated a negative investor

climate for many mega-mergers

and acquisitions. Weighing on

future M&A transactions has

been the recent negative reaction

that acquirers have seen in their

stock price following a deal

announcement. This may be partly

due to companies paying more

on average to buy companies this

year than they did last year.

• Increased economic uncertainty,

market volatility and negativity

have impacted deal completion

and have led to a more cautious

approach to M&A. In addition to

slow growth in the US and weak

conditions in Europe and Asia, the

ongoing political rhetoric during

this US and UK election year has

undoubtedly created concern

over increasing nationalism

and a possible restriction on

globalization and trade between

countries. Britain’s vote to leave

the EU has eroded the confidence

of corporate boards and the

new US government restrictions

on inversions have resulted in a

climate of caution, particularly on

cross-border deals.

• There is a new reluctance among

dealmakers to take on meaningful

regulatory risk or to pursue

unsolicited transactions that may

have previously provided tax and

other financial benefits because of

the string of very public “broken

deals” in the last two years. There

is no doubt that the number of

high-profile deals that fell apart

in 2016 due to antitrust rulings,

tax law restrictions and national

security issues has generated

a high level of caution among

company executives as they

contemplate complex deals that

may attract much greater scrutiny,

costing significant time and

money.

What trends do you identify as having

shaped lending markets lately?

The tightening of credit from regulated

institutions is continuing to accelerate

the shift to nontraditional lending

strategies. This type of lending will

continue to play an increasingly

important role, filling the gap left by

the retreat of BDCs and traditional

bank lenders. Nontraditional lenders

are providing a viable and often

successful option given the current

regulatory environment that has

pushed talent, ideas and capital out

of traditional banking segment. This

shadow lending industry continues to

chase highly levered, more challenging,

higher-yielding structures.

Given that traditional banks will face

ongoing regulatory scrutiny about

how much leverage they can supply

to PE transactions, it is likely that

their reluctance to lend on PE-backed

deals will continue. Capital constraints

and shareholder activism are putting

pressure on publicly traded BDCs. And

CLO (collateralized loan obligation)


issuances are decreasing because of

risk retention regulations. Clearly, the

climate is more challenging today for

dealmakers and buyers that are trying

to close transactions.

The reality is that a number of

traditional capital providers have

pulled back from the market, which

allowed the nontraditional sources of

capital to fill the void. Interestingly,

while in some cases PE firms have

found it difficult obtain the financing

needed to close very large deals, these

same firms can often swallow the

entire deal and look for financing later.

The substantial level of “dry powder”

in the PE sector has enabled marquee

shops to raise the capital themselves

and complete the deal on their own.

While PE firms are using dry powder

to complete deals, many BDCs are

not raising money right now. Instead,

they are recycling money and tend

to be a lot more cautious. Activist

shareholders are aggressively pushing

BDCs to change board members,

reduce fees, and sell assets, among

other changes. The CLO market is

facing extensive new compliance rules

and regulation changes which will

undoubtedly impact their strategies

as well as they navigate a much more

complex marketplace today.

These factors point to a lending

environment where nontraditional

lenders will continue to lend using

permanent capital funding structures

that are not impacted by market

conditions. Unlike more traditional

sources of debt, these nontraditional

sources of capital are working with the

advantages of serving as a one-stop

shop with the ability to work quickly

and the flexibility to speak to multiple

tranches in the capital structure on

even the most difficult deals.

What differences are there in the ways

that corporate acquirers and buyout

firms have responded to the high

valuation multiples we’ve seen lately?

Part of the solution is still on the

equity side, such as increasing deal

equity and stretching payment

horizons through earnouts and other

deferred payment structures. However,

because of the sustained competition

for funding levered deals, especially

among unregulated debt providers,

leverage multiples remain high in order

to bridge the higher valuations and

the equity check acquirers are willing

to write. Publicly traded corporate

acquirers have the luxury of using their

own stock as currency.

How does the current M&A landscape

differ across those regions? Have you

seen any changes in cross-border

M&A strategies?

A low-GDP environment worldwide,

geopolitical concerns and the

rise of nationalism have resulted

in a climate that has made cross-

border investments more complex

and challenging. Worldwide

macroeconomic conditions including

everything from currency fluctuations

to declining trade between nations

has resulted in a deep level of concern

shared by global executives seeking to

complete cross-border transactions.

Of note, we’re seeing a slowdown

in the number of M&A transactions

overall across all major geographic

regions around the world. This appears

to reflect the ongoing uncertainty

about global economic conditions,

especially in the wake of the UK

Brexit vote; the volatility in capital

markets; the unusual nature of the US

presidential race; ongoing pressure

with commodity prices; and, continued

concern around the economic

pressures faced by the Chinese.

Currently we believe that the US,

China, Germany, Canada and France

are still solid markets for dealmaking.

While global uncertainty has made for

a challenging and highly competitive

environment for cross-border deal

flow, we expect the US and European

M & A market to remain relatively

strong.

Also, China will continue to be a major

outbound acquirer having made

investments in dozens of nations

around the world in 2016. Chinese

bidders are also teaming up with local-

market joint venture partners that are

highly skilled in deal execution and

allow for more successful outcomes.

We expect this trend to continue.

Despite the volatile market conditions

faced by global companies today,

the demand for growth and return on

investment is greater than ever which

will most likely drive a modest increase

in M&A activity and cross-border deals

well into 2017.


DE ALMAKERS ADAP T TO CHANGING CONSUMERSpotlight: B2C

After strong 2Q, B2C deal value drops to historical norm

B2C deal flow by quarter

Source: PitchBook

Source: PitchBook

Representing about 20% of both

the count and value of overall

M&A transactions, the B2C sector is

among the most diverse, featuring

companies such as hotel operators,

furniture manufacturers, fashion

retailers, and movie producers. Each of

these companies, however, is adapting

to a changing landscape. Retailers

continue to address their ecommerce

strategies, as selling online is

becoming synonymous with selling just

about anything. In addition, consumers’

tastes are changing. Millennials

increasingly prefer experience-based

products and services such as those

within the travel and leisure segment,

while simultaneously buying fewer

luxury goods.

Similarly to the larger M&A landscape,

the number of deals in this consumer-

facing sector has decreased in the last

two quarters, with a notable uptick in

the percentage of deals completed

by PE firms as opposed to corporate

acquirers. The value of those deals,

however, remains relatively strong.

$89 billion in B2C M&A deals were

completed in 3Q 2016, in a 30% QoQ

decrease by count, but total value is

still well above the historical mean.

This is more a function of the larger

M&A cycle slowing down, and we

expect B2C companies to continue

pursuing M&A strategies.

There has been plenty of appetite

in the hospitality industry lately

as traditional hotels compete with

sharing economy models like Airbnb.

In September, Marriott International

closed its acquisition of Starwood

Hotels and Resorts to form a truly

behemoth hotel company that will

soon combine its consumer rewards

programs. Additionally, Anbang

Insurance Group acquired Strategic

Hotels and Resorts after it dropped out

of the Starwood deal.

Average & median B2C deal size ($M) B2C M&A (#) by acquirer type

$24

$23

$24

$45

$28

$45

$30

$46

$38

$36

$38

$27

$29

$57

$39

$260

$283

$276 $3

80

$206 $2

75

$419

$319

$316

$333 $4

19

$193

$362

$1,2

25

$551


2013 2014 2015 2016

Median Average

0

200

400

600

800

1,000

1,200

1,400


2013 2014 2015 2016

Sponsor-backed Corporate M&A

Source: PitchBook

$49

$60

$61

$97

$52

$85

$113

$84

$83

$95

$139 $5

7

$89

$253

$89

990 988

1,236 1,1161,263 1,321

1,184

617


2013 2014 2015 2016



IT M& A ON A RECORD-SET TING PACE Spotlight: IT

IT deal flow by quarter

Average & median IT deal size ($M)

Source: PitchBook

Source: PitchBook

IT has been the strongest sector in

terms of M&A activity in the last

few quarters, due to big-box deals

struck by both strategic acquirers

and PE investors. The two largest

transactions to close in the third

quarter were Dell’s $60 billion buyout

of EMC and Softbank’s $32 billion

purchase of semiconductor company

ARM Holdings, both contributing to a

deal value of $138 billion in the third

quarter alone. Through 3Q 2016, total

deal value was more than $367 billion,

a 169% increase over the same period

last year.

As previously mentioned, mega-deals

are driving much of the deal value in

M&A this year, and the IT sector is no

exception. Median deal size jumped

to $47 million in 3Q 2016, with an

average deal size over $1 billion, no

doubt due to the aforementioned

purchases of EMC and ARM, amongst

others. Purchase price is no longer as

much of an issue for tech acquisitions,

exemplified by Salesforce’s recent

interest in acquiring Adobe Systems,

who has a market cap of $54 billion to

Salesforce’s $50 billion.

Further, industry incumbents have no

shortage of cash to spend on other

companies. As many existing tech

stalwarts have experienced declines

in some of their legacy businesses,

corporate development teams are

assiduously examining the markets

for companies that can give them

the exposure they need to emerging

technologies, a trend that will help

support IT M&A moving forward..

$14

$46

$60

$87

$29

$78

$44

$137

$39

$52

$45

$111

$132

$98

$138

666

633

773 767

892 881833

585


2013 2014 2015 2016


$17

$22

$25

$28

$24

$23

$25

$29

$22

$20

$29

$35

$30

$23 $47$9

5

$261 $3

46

$442

$168

$423

$261

$635

$169 $2

63

$201

$458

$743

$550

$1,0

13


2013 2014 2015 2016

Median Average

IT M&A (#) by acquirer type

0

100

200

300

400

500

600

700

800

900

1,000


2013 2014 2015 2016

Sponsor-backed Corporate M&A

Source: PitchBook


ENGERY TRYING TO SURVIVE AMID LOWER PRICESSpotlight: Energy

Energy deal flow by quarter

Source: PitchBook

The energy sector, ever volatile and

exposed to changes in commodity

prices (namely crude oil and natural

gas), saw a large uptick in 3Q deal

value. Led by the acquisitions of two

natural gas providers/distributors,

AGL Resources and Colombia Pipeline

Group, M&A deal value in the energy

sector totaled $46 billion in 3Q 2016,

more than doubling the $19 billion

seen in 2Q, but still much lower than

investment figures seen during much

of the last few years. Through 3Q,

however, the value of energy M&A is

just $3 billion (1.9%) behind the same

period last year.

Only 127 deals were completed in

3Q, and we continue to see lackluster

transaction figures in the energy

sector. However, as we discussed in

last quarter’s report, some of this

decrease can be attributed to the type

of transactions happening in the space.

The majority of companies in this

industry have a fairly complex capital

stack involving high debt usage to

finance their operations. As oil prices

have remained low for the last two

years, bankruptcies and the need for

restructurings increased, opening the

door for distressed debt investment

by PE firms, a type of investment that

does not show up in the M&A figures

here.

Further, crude oil prices have

stayed low far past many investors’

expectations, creating an

uncomfortable mismatch between

buyer and seller expectations given

the uncertainty of future oil prices. As

oil prices have recently reached the

$50 per barrel mark, however, some

would-be sellers may be reevaluating

their chances of staying solvent, and

erasing any thoughts of selling to one

of their competitors. If oil prices stay

in their current range, we could see

deal flow continue to move forward in

coming quarters.

Average & median energy deal size ($M)

Source: PitchBook

$31 $9

4

$102

$84

$50

$75 $1

25

$77 $1

38

$40

$27 $1

20

$58

$75

$67

$237

$444

$371

$398 $4

74

$285 $3

81

$852

$674

$704

$270

$749

$1,2

43

$282

$787


2013 2014 2015 2016

Median Average

$13

$62

$45

$38

$20

$35

$29

$59

$95

$72

$30

$44

$19

$37

$37

$42

$38

$29

$43

$111

$62

$63

$22

$72

$80

$19

$46

180162

252

209

230205

188

239 225 256 226

188 168

127


2010 2011 2012 2013 2014 2015 2016



PE activity is down overall, but now makes up a larger portion of M&A transactions

PE activity (#) as % of overall M&A

Source: PitchBook

*As of 9/30/2016

Source: PitchBook

PE firms keep adding on at a record pace

Add-ons as percentage of buyouts by year Even as deal flow slows in the wider

M&A market, PE firms are showing

resilience in their ability to source and

execute deals. Usually accounting

for about a quarter of M&A activity,

sponsor-backed deals accounted for

31% of total M&A transactions in 3Q

2016, the highest proportion in at least

the last five years. That figure has seen

two consecutive quarterly increases

and shows that the slowdown in overall

deal count is having more effect on

strategic rather than financial buyers,

likely due to the time constraints and

near-requisite capital deployment that

comes with running a PE fund. Though

to be clear, the number of PE-backed

M&A transactions through 3Q has

decreased by 19% year over year.

As we’ve touched on in previous

reports, add-on transactions have

made up a larger portion of total PE

deal flow in recent years. Through 3Q

2016, 56% of PE transactions were

SECONDARY BUYOUTS KE Y AS PE DISPL AYS REL ATIVE STRENGTHPrivate equity

1822 23

65

2446

2407 29

70

3264

2038

1971

2158

2220

2080

2500 25

42

1574

48%52% 52% 54% 54% 56% 56%

2010 2011 2012 2013 2014 2015 2016*

Add-On Non Add-On Add-On %

0%

5%

10%

15%

20%

25%

30%

35%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000


2010 2011 2012 2013 2014 2015 2016

Sponsor-backed Corporate M&A Sponsor-backed %


Strategics have held off more often than not as of late

PE-backed exits (#) by type

Source: PitchBook

add-ons, up from 48% in 2010. With

higher EBITDA multiples and fewer

quality targets available in recent

years, PE firms that have traditionally

been focused solely on operations are

now seeing add-ons as a must-have in

creating alpha.

Traditionally, strategic acquisitions

make up the majority of buyers for PE

exits, however, portfolio companies

are increasingly being sold to other

financial buyers. Continuing the trend

from last quarter, about half of PE exits

came from secondary buyouts in 3Q

2016. As PE firms increasingly pursue

add-on strategies, many of their

targets are already backed by fellow

PE funds, contributing to this increase.

There have already been 195 public-

to-private deals completed through

3Q, more than we recorded in all of

2015. However, just 26% of take-private

transactions have been backed by

sponsors thus far in 2016, compared

to 36% last year and 38% in 2014. More

often, public companies are being

acquired by firms who may straddle

the line between strategic and financial

buyers. Take, for example, Berkshire

Hathaway’s recent acquisition of

industrial giant Precision Castparts, or

semiconductor producer Broadcom,

which was acquired by industry rival

Avago Technologies, which itself

received financial sponsorship from

various PE firms. These two cases

exemplify the difficulty in classifying

such deals.

.

Public-to-private deals by acquirer type

0

100

200

300

400

500

600

700


2010 2011 2012 2013 2014 2015 2016

Secondary Buyout Strategic Acquisition

42%

58%

40%

60%

38%

62%

36%

64%

26%

74%

Financial Buyer

Strategic Buyer

20122013201420152016*

Source: PitchBook

*As of 9/30/2016


Kirkland & Ellis 79

Latham & Watkins 71

Jones Day 61

DLA Piper 57

Goodwin Procter 34

Shearman & Sterling 32

Skadden, Arps, Slate, Meagher & Flom 31

Sidley Austin 29

Weil, Gotshal & Manges 28

Orrick Herrington & Sutcliffe 26

Ropes & Gray 26

Stikeman Elliott 25

White & Case 24

Wilson Sonsini Goodrich & Rosati 23

Allen & Overy 21

Paul, Weiss, Rifkind, Wharton & Garrison 21

CMS Cameron McKenna 20

Morgan, Lewis & Bockius 20

Paul Hastings 20

Debevoise & Plimpton 19

Gibson, Dunn & Crutcher 19

Simpson Thacher & Bartlett 19

Blake Cassels & Graydon 18

Hogan Lovells 17

Morrison & Foerster 17

Wachtell, Lipton, Rosen & Katz 17

Cooley 16

Squire Patton Boggs 16

Willkie Farr & Gallagher 16

Most active law firms by deal count

LEAGUE TABLES 3Q 2016

PricewaterhouseCoopers 71

The Goldman Sachs Group 42

Ernst & Young 41

Houlihan Lokey 37

KPMG 37

Bank of America 34

BDO 32

J.P. Morgan 29

Morgan Stanley 28

Deloitte 27

RBC Capital Markets 27

Rothschild & Co. 26

Lazard 24

William Blair & Company 24

Moelis & Company 23

Deutsche Bank 22

Evercore Group 22

Stifel 22

Raymond James Financial 21

Lincoln International 20

Piper Jaffray 20

Barclays 19

Sandler O’Neill & Partners 19

Citigroup 18

FTI Consulting 17

Robert W. Baird & Co. 17

UBS 17

Credit Suisse 16

Most active advisors by deal count

Source: PitchBook. Note: these league tables are based on both PitchBook data and verified reporting, and consequently may be subject to

updates for up to one week after the original date of publication. They are based on deal counts where the target company was based in North

America or Europe.

Source: PitchBook

Source: PitchBook


K E E P I N G I T S I M P L EO U R M & A R E S E A R C H M E T H O D O LO GY

We define M&A as a transaction in which

one company purchases a controlling stake

in another company which is based in North

America or Europe. Other information

providers include non-control deals,

announced or rumored transactions, etc.—

we cut through the noise by analyzing only

completed control transactions.

Here are our qualifiers for this report:

Eligible transaction types include control acquisitions,

leveraged buyouts (LBOs), corporate divestitures,

reverse mergers, mergers of equals, spin-offs, asset

divestitures and asset acquisitions

We don’t include debt restructuring or any other

liquidity, self-tenders or internal reorganizations

In controlling stake transactions, more than 50% of

the company must be acquired

We don’t include minority stake transactions (less

than a 50% stake in a company purchased)

The target company (the entity being acquired)

must be headquartered in either North America or

Europe

We don’t base involvement on the location of the

acquirer, seller, or either parent company

We count completed deals, not announced,

rumored or cancelled

Transactions must involve small-to-medium

enterprises or corporations

Small business transactions are not included in this

report

See how the PitchBook Platform can

help your private equity firm close your

next deal.

[email protected]

We do EBITDA multiples,private comps,valuations,market trends,growth metrics.

You build a better portfolio.

3q 2016 - hilco global

Documents