Back to School
For one thing, many sponsors over the years have been compelled to share with investors most if not all of the deal fees and monitoring fees that they collect from portfolio companies. Then this spring the U.S. Securities and Exchange Commission said that in its first wave of industry examinations it had found deficiencies in how well sponsors disclose such fees to investors.
At this point sponsors may be simply throwing up their hands.
In the second quarter of this year, sponsors charged transaction fees on fewer than a third of their new deals (32 percent), while they charged monitoring fees on an even smaller share (29 percent). That is according to findings from the third-quarter “Global PE Deal Multiples & Trends Report” from PitchBook Data Inc, which includes data from a survey of about 40 to 50 dealmakers operating around the world.
The dropoff during the last two and a half years has been eye-opening. As recently as the first quarter of 2012, sponsors charged transaction fees on some 90 percent of their deals, according to PitchBook. They charged monitoring fees on some 60 percent of their deals that same quarter.
Other highlights from PitchBook’s third-quarter report:
• At least some transactions are taking longer to close. In the second quarter well over a third (38 percent) of transactions took at least 20 weeks from signed letter of intent to closed deal. By comparison, the share never breached 30 percent in any quarter of 2012 or 2013 and sometimes fell below 10 percent. In its evaluation, PitchBook observed, “It’s likely that high valuations are having an effect on closing times, as GPs are conducting more thorough due diligence on their investments in a frothy environment.”
• Despite that frothy environment equity-to-debt ratios haven’t shifted all that much in the last two and a half years. Equity contributions have remained in the 40 percent to 50 percent range of sponsored transactions on average for most of that time, and hit 47 percent in the second quarter. The level of non-senior debt in the capital structure of transactions appears to be declining and logged in at just 5 percent in the second quarter. That was the lowest level since the second quarter of 2012. Senior debt accounted for 48 percent of the capital structure of deals in the second quarter.