Talking Deal Prices with Steve Gelsi: Was Active Network a 27x deal, or 13.5x?

Based on its latest full year of adjusted EBITDA of $38.4 million when the deal was initially announced, Vista Equity’s acquisition multiple comes to about 27x.

But the multiple falls to about 16x by annualizing third-quarter adjusted EBITDA of $16.4 million in Active Network’s last financial filing on Oct. 30, just prior to the close of the deal.

In the same filing, Active Network also disclosed an even higher quarterly adjusted EBITDA of $19.5 million, excluding charges related management changes and costs attached to the Vista Equity transaction. Assuming annual adjusted EBITDA of $78 million a year, Vista Equity paid a multiple of about 13.5x for Active Networks.

The more favorable EBITDA multiple of 13.5x may have been the figure Vista Equity used to shop around for financing for the deal, one general partner in the tech space told Buyouts. I was unable to reach Vista Equity for comment.

While some executives may still think that’s a bit rich for a deal, any firm like Active Network that falls into the cloud-based Software as a Service (SaaS) space commands strong interest at auctions. And prices may often ride much higher in the space, buyout executives warned.

But the ultimate price may rest in part on which EBITDA number gets used prior to the close of a deal. That figure often depends on a GP’s ability to drill down during due diligence and find cost synergies and growth opportunities to share with lenders.

Apollo Acquisition Multiples

While sponsors often chase multiples north of 10x in auctions nowadays, Apollo Global Management co-founder, chairman and CEO Leon Black said in a recent keynote interview that his priority for 2014 and beyond remains much lower price points.

To Black, speaking during his appearance on February 28 at Columbia University’s annual private equity and venture capital conference in New York, that means staying close to the average entry EBITDA multiple of about 6.2x for its vintage 2008 Apollo Fund VII, which raised $15 billion.

Apollo Global obtained these favorable purchase multiples by focusing on complex deals, like the roughly 50-corporate carveouts done by the firm over its history, usually at about 6x EBITDA. Distressed debt deals also offer favorable entry price points of about 5x.

Black admitted to paying “a bit higher multiples” for “conventional buyout” deals. But he added they only make up about one third of the firm’s acquisition deal flow.

Looking ahead, Black said Apollo Global continues to find opportunities for buying at favorable multiples, with work underway on two or three corporate carve-outs, among others.

While Apollo Global remains one of the largest private equity firms ever with $161 billion in assets under management and billions in dry powder to burn, it all still rests on value, Black said.