Need To Know: Premiums Rise For Mid-Market Deals

Deal size premiums are rising for mid-market deals while staying steady for small-market deals, according to second quarter data GF Data Resources recently released. Valuations for deals in the $10 million to $25 million total enterprise value range averaged 5.2x EBITDA, while valuations in the $100 million to $250 million range averaged 7.5x EBITDA, which is a full turn higher than the 6.2x EBITDA average in 2010 and a record high, according to the Philadelphia-based firm, which studies mid-market private equity deals. The disparity is to some extent caused by how much debt financing is available for larger businesses, B. Graeme Frazier IV, a co-founder of GF Data, said in a release. “Essentially what we are seeing is a market that is far less accommodating to smaller deals,” Frazier said.

Emerging Markets Fundraising On Pace To Double

Fundraising for funds dedicated to China, Latin America and other emerging markets has increased in 2011, while private equity-backed deal volume in those regions has remained steady, according to the Emerging Markets Private Equity Association. According to the trade group, fundraising in 2011 for funds focused on these fast-growing regions could double that seen last year: 89 funds raised $22.6 billion in the first half of this year, which is already nearly as much as the $23.5 billion raised in all of 2010. Funds dedicated to China, India and Brazil attracted 70 percent of the capital raised in 2011 through June. On the deal-making side, things are more steady-eddy: Private equity firms backed 431 deals in emerging markets valued at $14.1 billion, compared to 434 deals valued at $12.8 billion for the comparable period in 2010, the group said.

More Red Tape In Anti-trust Review

As of Aug. 18 buyout firms had to be more forthcoming about investments when reporting them to the Federal Trade Commission, part of changes the agency made to the premerger notification process under the Hart-Scott-Rodino Act.

The new rules require information about ties between private equity funds and other entities “associated” with the buyer that compete or have equity investments in the same business as the target. For example, if a private equity firm is buying a company in, technology industry, for example, it would have to report—upfront—other technology investments made via other funds. Previously, the FTC would only require information on the fund acquiring the target. The new rules are intended to get, from the outset of the review, the kind of information the FTC used to request only when it had concerns about a particular transaction, according to an attorney familiar with the changes. The rules stem, in part, from the FTC’s scrutiny of the 2007 takeover by The Carlyle Group and Riverstone Holdings of energy company Kinder Morgan Inc. At the time, the FTC said that Carlyle and Riverstone already held significant positions in Magellan Midstream, a competitor of Kinder Morgan. The FTC ultimately approved the $22 billion deal.