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Mergers & Acquisitions | Debt & Equity Placements | Strategic Advisory Services
Seattle
CLE Materials
May 2018
2
2018 Pacific Northwest Deals SpotlightPanel Discussion
Moderator:Walt Maas – Shareholder, Karr, Tuttle Campbell
Panelists:Charley Geiger – Principal, Blue Point Capital Partners
Nicholas E. Ferrer – Partner, Perkins Coie LLP Brian Murphy – President and Managing Director, Meridian Capital
Bradaigh Wagner – Managing Director, Endeavour Capital Mark D. Working – Co-Founder, Zachary Scott Investment Bankers
3
National M&A Trends
4
M&A Activity – North America
$1
,76
8.2
$1
,12
4.5
$7
30
.7
$1
,02
7.8
$1
,13
0.1
$1
,29
6.7
$1
,26
9.3
$1
,81
2.8
$2
,13
2.0
$2
,14
7.6
$1
,80
4.0
10,026
8,672
6,825
8,621
9,877
10,89010,450
13,06614,035
12,480
10,465
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
$0
$500
$1,000
$1,500
$2,000
$2,500
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*
Deal Flow ($B) Deal Count(#)*Estimated Projection
Source: Standard & Poor’s, Pitchbook
Record Deal Flow in 2015 and 2016 – slight decline in activity in 2017
5
US Private Equity Deal Flow by Year
$2
89
$3
38
$3
66
$4
36
$5
13
$5
51
$5
99
$5
74
$8
9
1101
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
$0
$100
$200
$300
$400
$500
$600
$700
2010 2011 2012 2013 2014 2015 2016 2017 2018*Deal Value ($B) Estimated Deal Value ($B) # of Deals Closed # of Estimated Deals Closed
*Estimated ProjectionSource: Standard & Poor’s, Pitchbook
PE Activity Increasing, Playing Larger Role in the M&A Markets
6
M&A Activity – Number of Deals by Deal Size
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*
Under $100M $100M-$250M $250M-$500M $500M-$1B $1B-$5B $5B+
*Estimated ProjectionSource: Standard & Poor’s, Pitchbook
Transactions under $100 Million consistently represent over 65% of all deals
7
Median and Average Deal Size
$21 $24 $25 $25 $31 $30 $30 $40
$223 $216$241
$280
$308
$342
$413 $418
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
2010 2011 2012 2013 2014 2015 2016 2017*
Median Average
*Estimated Projection
Source: Standard & Poor’s, Pitchbook
Median deal size has nearly doubled since 2010 to $40 million
8
M&A Activity – Number of Deals by Sector
0
5,000
10,000
15,000
20,000
25,000
30,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*
B2B B2C Energy Financial Services Healthcare IT Materials & Resources
*Estimated ProjectionSource: Standard & Poor’s, Pitchbook
B2B, B2C and IT industries driving strong M&A activity
9
Pacific Northwest Transaction Statistics – 2017 and 2018 YTD
10
PNW Transaction Statistics – 2017 and 2018 YTD
2017 Deal Value
2018 YTD Deal Volume
2017 Deal Volume
2018 YTD Deal Value
Source: Pitchbook
Deal value represent data from 132 of 605
transactions
1111
D e a l s b y I n d u s t r y
0
20
40
60
80
100
120
140
BusinessServices
Consumer Distribution FinancialServices
Healthcare Industrials Manufacturing Technology
Num
be
r o
f D
ea
ls
Deal Volume by Industry
2017 2018 YTD
$0.0
$2,000.0
$4,000.0
$6,000.0
$8,000.0
$10,000.0
$12,000.0
BusinessServices
Consumer Distribution FinancialServices
Healthcare Industrials Manufacturing Technology
To
tal V
Alu
e (
$M
)
Deal Value by Industry
2017 2018 YTD
Source: Pitchbook
Transaction value represents data from 132 of
605 transactions
PNW Transaction Activity by Industry – 2017 and 2018 YTD
Key Highlights
• Q1 2018 deal activity in region on
pace to match 2017 volume
• Technology and healthcare industries
continue to drive local deal activity
given significant level of local
entrepreneurial talent
• Industrial activity driven by
construction and building products
transactions as investors seeks
access to attractive PNW dynamics
12
Factors Driving M&A Activity
1313
Alignment of Macro Trends and Business Considerations
2011 2012 2013 2014 2015 2016 2017 2018 2019+
2018
Where are we in
market cycle?
Macro Valuation Trends
• Valuations remain strong, but have experienced several years of above average multiples
• Significant debt and equity financing chasing limited transactions
• Likely a continued rising interest rate environment
• Strong macroeconomic performance
• Positive businesses owner sentiment
Business Considerations
• What are realistic growth assumptions?
• Impact on business valuation if multiples normalize?
• Investment needs in consolidating markets?
14
Median US EV/EBITDA Multiples
5.0
x
4.9
x
3.6
x 4.6
x
5.0
x
4.2
x
5.1
x
5.4
x
5.7
x
5.2
x
5.7
x
3.9
x
3.4
x
3.8
x 3.5
x 4.1
x
4.1
x 3.4
x 4.2
x
4.3
x
5.2
x
4.8
x
8.9x
8.3x
7.4x
8.1x
9.1x
8.3x 8.4x
9.6x10.0x
10.5x 10.5x
0x
2x
4x
6x
8x
10x
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*
Debt/EBITDA Equity/EBITDA Valuation/EBITDA*Estimated ProjectionSource: Standard & Poor’s, Pitchbook
Historically high valuations and leverage for past 3 years
15
Source: Standard & Poor’s, Pitchbook. Chart $ in billions.
Over $1 Trillion in Available Capital Driving Valuations
As of June 2017, $1.1 trillion in capital commitments were available for PE and VC firms to invest.
Private Equity, $961.5
Venture Capital, $145.4
16
Timing and Valuation Considerations… When multiples are constant
Assumptions
Business Growth Rate 12%
Discount Rate - Time Value of Money 5%
Discount Rate - Execution Risk 0%
Beginning Multiple 10.0x
Multiple % Decline 0%
Year EBITDA MultipleEnterprise Value
(Future Dollars)
Enterprise Value
(Today's
Equivalent)
2017 10.00$ 10.0x $100.00 $100.00
2018 11.20$ 10.0x $112.00 $106.67
2019 12.54$ 10.0x $125.44 $113.78
2020 14.05$ 10.0x $140.49 $121.36
17
Assumptions
Business Growth Rate 12%
Discount Rate - Time Value of Money 5%
Discount Rate - Execution Risk 0%
Beginning Multiple 10.0x
Multiple % Decline -20%
Year EBITDA MultipleEnterprise Value
(Future Dollars)
Enterprise Value
(Today's
Equivalent)
2017 10.00$ 10.0x $100.00 $100.00
2018 11.20$ 8.0x $89.60 $85.33
2019 12.54$ 8.0x $100.35 $91.02
2020 14.05$ 8.0x $112.39 $97.09
Timing and Valuation Considerations…When multiples normalize
18
General Valuation Drivers
19
Understanding Key Value Drivers in Your Industry…
Industry GeneralistNiche Market /
Industry FocusedFocus
Generic / Low
Barriers to EntryStrategic / Value-add
Product/
Services
RegionalNational Footprint /
ReputationReputation
Below Average
Margins
Operational Leverage
and High MarginsProfitability
Customer
Concentration
Diverse Customer
BaseCustomer Base
Early Stage Business
with Low Volume
Established Business
with Large ClienteleSize/Scale
One-time ProjectsContracted /
RecurringRevenue Profile
Increasing Multiple
20
Consistent, Strong
Performance
• Established Market
Position
• High Customer
Retention Driving
Recurring Revenue
• Differentiated Service
Offering
• Diverse End Market
Exposure
Consistency
Infrastructure
• Systems and
Processes in Place
• Reporting Capabilities
to Support Business
Decisions
• Management Team in
Place to Execute
Growth Plan
• Ability to Integrate Add-
on Acquisitions
Scalability
Near-term, Tangible
Growth Opportunities
• Industry is Poised for
Growth and
Consolidation
• Achievable Growth
Opportunities
• Exposure to Attractive
Regions
• Ability to Clearly
Articulate Growth
Initiatives
Visibility
What Drives the Multiple that Investors are Willing to Pay?
Minimize Perceived Risk
Maximize Perceived Reward