After a Covid-driven dip in deal activity over the last several quarters, we appear to have reached the light at the end of the tunnel. According to GF Data’s Q4 report, it has been an exceptionally strong quarter with a high volume of deals.

GF Data’s quarterly report focuses on private M&A transactions valued from $10 to $250 million. The Q4 survey includes data from 258 private equity funds and includes the following key takeaways:

• There were 151 closed transactions in Q4 2021, up from 73 in Q3 2021 (a 107% increase), and 135 in Q4 2020 (a 11.8% increase).

• Total debt used in funding transactions increased to 4.2 times EBITDA, up from 4.0 in Q3. This indicates that there’s room for valuations to increase over current levels.

• 2021 saw a total of 382 buyout transactions, a 32% increase over 2020’s volume of 288, and a 40% increase over the prior 4-year average of 272 transactions (from 2017-2020).

• Valuations in Q4 averaged 7.5x (matching Q3), up from 6.6x in Q3 ‘20 and 6.9x in Q4 ‘20.

• Transactions involving companies with 10% EBITDA margins and at least 10% revenue growth received a 30% premium in valuation versus other companies in the data pool.

This report is consistent with recent data indicating that there is a large amount of “dry powder” on the sidelines in private equity funds and on strategic buyer balance sheets targeted for acquisitions.

PitchBook estimates that there is $2.1 trillion waiting to be deployed by private equity funds, and a staggering $8.5 billion in cash on corporate balance sheets. Based on these figures and the latest GF Data report, all signs point to a continuing “seller’s market.”

What Does This Mean for Sellers?

While we don’t need to tell you what a seller’s market means for you, always remember that the world of finance is cyclical in nature. If you’re considering selling your business, don’t wait on the sidelines for too long, as things can change quickly.

Did the mention of a 30% premium in valuation for above average financials get your attention? In this case, above average is defined as 10% EBITDA margins and revenue growth, or one metric above 12% and the other at least 8%. If your company is right on the bubble of that 10% mark, it’s worth considering what moves you can make to increase your margins and growth rate into this target range.

While the trends in Q4 are all moving in the right direction, like the rest of the world we are tuned into the macro geopolitical events currently in the headlines. So far, we’re still seeing good deal flow and strong interest from a variety of buyers.

FourBridges’ Current Engagements

In the past month, our team has recently closed a pair of deals:

• RestorePro Reconstruction Sells to Fleet Response

• Saylite Acquires Southern Lighting Gallery

In addition, we anticipate closing two transactions in the contract manufacturing and specialty construction sectors, respectively in Q2 2022, and have an additional 6 engagements in the market, or preparing to go to market.

Recent Private Equity Transactions

Here’s a look at a few recent deals completed by private equity groups.

Bunker Hill Capital L.P. completed the recapitalization of SunBriteTV, a leading designer, manufacturer and supplier of all-weather outdoor televisions and accessories.

Belt Power LLC has acquired Accurate Industrial Products, LLC, a fabricator and distributor of lightweight belting products and services for more than 25 years.

Private equity firm Eagle Merchant Partners completed a majority recapitalization of its portfolio company Code Ninjas, a franchisor of coding schools for kids. Eagle’s portfolio company Recreational Group, which provides surfacing products, acquired Easy Grass and Synthetic Grass Pros.

D&H United Fueling Solutions, a portfolio company of KLH Capital, has acquired Petroleum Marketers Equipment Company and Valley Tank Testing. KLH also recently completed a management buyout of The Warehouse Rentals & Supplies.

Recent Acquisition Searches by Private Equity Groups

Wondering what kinds of companies buyers are looking for? Here are a couple recent searches from private equity groups.

HKW, a middle-market private equity firm that invests in the US and Canada, is seeking Health & Wellness opportunities, including the following sub-sectors: better-for-you consumer products and services, food & beverage, pet products and services, healthcare supplies and distribution, and outsourced healthcare services.

Taglich Private Equity, a private equity firm focused on the lower middle-market, is looking for ventilation and climate control product companies (heaters, fans, etc.) with revenues ranging between $5 and $100 million.