Beyond EBITDA – 5 Other Factors That Affect How Private Equity Buyers Value Companies

Macro photo of tooth wheel mechanism with ANALYSIS, QUALITY, CONTROL, FINANCE and BUSINESS concept words

Thinking beyond objective measures, Prospect Partners shares its thoughts about subjective variables that enter into an investor’s calculations in evaluating a potential investment: management and its vision, market trends, a variety of concentration measures, constraints on capacity, and human resource concerns. Read more here.

Private Equity Firms Can Be a Superior Alternative to Bank Loans

May 2017George Cole and Hal Greenberg, Managing Partners at Riverside Strategic Capital Fund, write that small business owners should consider private equity as a compelling alternative to bank loans. Traditional bank loans may not serve the needs of small businesses due to high monthly amortization and onerous terms and at times are not even available to small businesses.  Many private equity firms will now purchase a minority stake in a business rather than demand majority control or a full buyout.  Cole and Greenberg argue that a non-control equity investment can be superior to a traditional bank loan.  Their rationale is that a minority investment from a quality private equity firm is about much more than cash – these firms have resources and expertise that can accelerate the growth and efficiency of a business.  Their caveat is to do the due diligence – check reputation and track record among other issues – to help ensure that the small business owner will feel comfortable with the private equity firm as a partner.  Read the full article here.

Private Equity Buyers are Increasingly Active in the Middle Market IT Sector

Business, Technology, Internet and network concept. Young busineAccording to PitchBook’s most recent “US PE Middle Market Report”, the information technology sector was the second most active target industry for private equity investments in the first quarter of 2017, behind only the business-to-business sector.  This was partly due to the slowdown in deal making in other industries and also a result of the higher than average deal size for IT acquisitions.  But a more important factor is the successful development of recurring revenue streams in the software-as-a-service sector and impressive financial performance sector-wide, reducing the perceived risk of the industry.  Read the full report here: 2017 1Q US PE Middle Market Report.

Four Mistakes Companies Make in Mergers—and How to Avoid Them


Tuck School of Business professor, Dr. Sydney Finkelstein, in a recent Wall Street Journal article, identifies commonly made mistakes that companies make when engaging in takeovers: believing that prior transaction experience gives a leg up; following the crowd; misunderstanding the nature – and cost – of synergies; and mishandling the integration.


He gives his insight into managing these in Four Mistakes Companies Make in Mergers—and How to Avoid Them.

Private Equity Investors Are Being Shouldered Aside From the Largest Deals by Corporate Acquirers

Feb 2017Corporate acquirers and megadeals (transactions valued at $5 billion or more) dominated the merger and acquisition market in 2016.  According to PitchBook’s 2016 Annual M&A Report, corporate acquirers accounted for $1.7 trillion of the $2.1 trillion total deal value in 2016, or about 80%.  Megadeals represented more than 55% of total merger and acquisition value.  Corporate acquirers took advantage of high cash reserves, high stock prices, and strategic rationale to outbid private equity investors, especially at the high end of the market.  But private equity-backed deals made up almost 29% of completed transactions, an all-time high.  So, sponsors haven’t reduced their activity.  Rather, they have been pushed down to smaller transaction sizes and increased their focus on add-on acquisitions where they can compete with strategic acquirers.  Read the full article here: 2016 PitchBook M&A Report.

Secrets of a Successful Capital Raise

If you’re considering a capital raise for your business you undoubtedly have a lot of questions:  Is the timing right?  Do I need outside help?  How do I prepare? And many others.   Peter Lehrman, Founder and CEO of Axial, went through the process himself and has written an insightful article on the capital raising process and what CEOs need to know to improve the odds of a successful outcome.  Check out the article here: Secrets of a Successful Capital Raise.

The CEO’s Secret Handbook


Paul Kaihla provides a synopsis of the collected wisdom that evolved from the Unwritten Rules of Management into the cover article in a 2005 issue of the now-defunct Business 2.0 entitled The CEO’s Secret Handbook”. The thoughts are timeless; the suggestions invaluable. It’s reprinted here.

Recapitalization has replaced selling the company as a key reason that businesses are going to market

leveraged-recapThe Market Pulse Report, published by the International Business Brokers Association and others, stated that for the first time in nearly three years recapitalization has replaced selling the company as a key reason that businesses valued between $5 million to $50 million are going to market.  Recapitalizations permit owners to lessen their financial risk as a result of the transaction while getting a second bite of the apple when their remaining shares are sold in the future.  The report also found there to be a substantial increase in private equity activity for firms in this value range.  In the 3rd quarter of 2016, 50% of buyers were private equity firms versus 39% in the 2nd quarter of 2016.  To read the article click here.

Buyout Multiples for Lower Middle Market Transactions Surge

According to Pitchbook, the median Enterprise Value/EBITDA multiple for buyout transactions smaller than $25 million in the second quarter of 2016 was 6.13x.  This is the highest multiple for this sector in almost three years.  The multiple increase is driven by a number of factors, including lots of private equity buyers with cash to spend and the low interest rate environment.  But the most likely reason for the higher multiples is that the deals that are getting done are for high quality businesses.  These are the businesses that can get financed and have lots of interested buyers that drive up the ultimate valuation.  The “average” companies are just not getting sold and so their valuations don’t drive down the multiple.  As always, quality companies will attract premium pricing even in an uncertain market environment.  See the Pitchbook article here: Median EV/EBITDA buyout multiples surge for sub-$25M enterprises.

20 M&A Mistakes to Avoid

things to consider

Axial’s Megan Daniels polled professional CEO coaches to get advice on mistakes to avoid when planning or going through a transaction. As she notes, “Deals can be difficult. Whether you’re exiting, recapitalizing, going public, or making an acquisition, it can be hard to balance the transaction with day-to-day operations, get the support you need, and be confident you’re making the right choices.”

Read the commentary here: 20 M&A Mistakes to Avoid