PitchBook GT Exits Report 1H2011

8/4/2019 PitchBook GT Exits Report 1H2011

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Private Equity Exits Report

2011 Mid-Year Editon

PitchBook &

Grant Thornton

Sponsored by:

Private Equity: Data | News | Analysis


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Table Of Contents

Grant Thornton Introducon ................................................. 3

Private Equity Exits Overview ................................................ 4-9

Deals and Exits Imbalance .................................................. 4

Porolio Inventory and Holding Period ............................ 5

Exit Trends by Year and Quarter ....................................... 6

Median Exit Value and Exit EBITDA Mulple ................... 7

Exits by Size Bucket .............................................................. 8

Exits by Region and Industry .............................................. 9

Industry Focus ........................................................................ 10-11

Business Products and Services ......................................... 10

Consumer Products and Services ...................................... 10

Informaon Technology ...................................................... 10

Healthcare ............................................................................. 11

Financial Services ................................................................. 11

Energy .................................................................................... 11

Cross-Border Exits .................................................................. 12

Exit Type ................................................................................. 13-16

Overview ............................................................................... 13

Corporate Acquision ......................................................... 14

Secondary Buyout ................................................................ 15

Inial Public Offering ........................................................... 16

COPYRIGHT 2010 by PitchBook Data, Inc. All rights reserved. No part of this publicaon may be reproduced in any form orby any means graphic, electronic, or mechanical, including photocopying, recording, taping, and informaon storage andretrieval systems without the express wrien permission of PitchBook Data, Inc. Contents are based on informaon fromsources believed to be reliable, but accuracy and completeness cannot be guaranteed. Nothing herein should be construed asany past, current or future recommendaon to buy or sell any security or an offer to sell, or a solicitaon of an offer to buy anysecurity. This material does not purport to contain all of the informaon that a prospecve investor may wish to consider andis not to be relied upon as such or used in substuon for the exercise of independent judgment.

The PitchBook AdvantageBeer Data. Beer Decisions.

Private Equity Exits - 2011 Mid-Yearwww.granhornton.comwww.pitchbook.com | [email protected] | 1-877-26


3/18


Theres a lot of research and data out there regarding M&A acvity. Most of this informaon relates to overall trends or

perhaps a segregaon of data by transacon size or industry sector. There is even a fair amount published on private

equity acquision acvity. However, one area that doesnt seem to get quite as much aenon is private equity exits.

For that reason, Grant Thornton LLP and PitchBook have teamed up to explore this topic. On a bi-annual basis, we will

present the current state of private equity exit acvity, historical trends, and our thoughts and insights. We hope this

publicaon helps you beer understand this increasingly important element of the transacon market.

In this installment, we look at private equity exit acvity as of mid-2011 specifically as of June 30, 2011. Overall, 2011

has connued to be a year of recovery for the M&A market. For private equity, the data and trends yield a number of

interesng observaons:

Private equity acquision acvity built to a crescendo and peaked at nearly 2,000 deals (excluding add-ons) in

2007. However, exits dropped significantly during the recession leaving a record level of porolio companies (nearly

double the number from five years ago). A third of these porolio companies have been owned for more than 5 years.

Exit acvity is starng to recover, but it is sll off from the peak levels of 2006 and 2007. Acvity in the first half

of 2011 exceeded the first half of 2010. However, acvity at the end of 2010 was strong, spurred in the fourth quarter

with the scheduled expiraon of certain tax breaks, which were eventually extended.

One piece of good news is that exit mulples for private equity-backed companies are well above levels seen in

the early part of the decade. The median EBITDA mulple is down from the peak in 2007, but that would not surprise

anyone in the industry.

Private equity exits were fairly well disbursed geographically, with the Midwest seeing the largest proporon of

transacons during the first half of 2011. From an industry point-of-view, the Business Products and Services segment

represented nearly one-third of the exit acvity, while Financial Services represented the lowest, aer undergoing a

20% decline compared to 2010.

These highlights are a few high level observaons from the data presented in this publicaon. As a private equity owner,

you may find specific areas of interest based on the parcular size, industry, and stage of development (i.e., how close

you are to an exit) of your porolio companies. We hope this informaon sheds some light on market dynamics as you

assess your parcular exit alternaves.

Stephen McGee

Pracce Leader

Grant Thornton Corporate Finance


Private Equity Exit Acvity

The people in the independent firms of Grant Thornton Internaonal Ltd provide personalized aenon and the highest quality servic

to public and private clients in more than 100 countries. Grant Thornton LLP is the U.S. member firm of Grant Thornton Internaonal Ltd

one of the six global audit, tax and advisory organizaons. Grant Thornton Internaonal Ltd and its member firms are not a worldwid

partnership, as each member firm is a separate and disnct legal enty.

Grant Thornton LLP offers private equity firms and their porolio companies a broad array of services tailored to their individual need

and goals. Our professionals are responsive and dedicated, with strong experience in audit, tax, transacon and other advisory service

More importantly, we bring valuable ideas and insights to help our private equity clients achieve their objecves to build and realiz

exceponal value.


4/18

Private Equity Exit Acvity

U.S. Private Equity Investments and Exits

The U.S. private equity lifecycle over the past decade has appeared to be limited to raise fund, invest fund, raise another but bigg

fund, make more new investments and repeat. What has been missing is a significant focus on completely realizing matu

investments. This has not been the case for all private equity firms, but looking at the chart below and considering that the remainivalue of PE funds between five and ten years old is 57% of their total value (notably that 57% usually includes the funds en

profits), it appears to be a widespread phenomenon. To be fair, the unforeseen financial crisis and ensuing economic recession on

exacerbated this imbalance between new investments and exits, as it hit during many PE porolio companies exit window, forc

PE firms to push that window further back and wait for balance sheets, performance and valuaons to recover.

This has le U.S. private equity porolios bursng at the seams with a record 6,107 companies, over 4,000 of which are older th

three years and 2,000 of which are older than five years. The resulng general imbalance is causing firms to reevaluate their foc

and limited partners to hold back from any further commitments unl they see more distribuons. PE firms have been able to fi

some liquidity in their porolios through dividends, dividend recapitalizaons and paral sales, but most, if not all, of the profit is

realized unl the final sale of the company. The criteria for PE firms to successfully raise another fund now not only includes havia track record of good investments but also having a track record of being able to exit those investments and returning capital to th

limited partners. This is why exits are so crical to private equity, more so now than ever before.

The rest of this report will dive deeper into the current investment-to-exit imbalance and then cover, in detail, U.S. private equity ex

acvity for the first half of 2011 and recent years. It will explore the types of companies being sold, how they are being sold and

whom they are being sold in an effort to uncover the trends in todays U.S. private equity exit acvity.


* Q



5/18

Company Inventory

The number of companies currently owned by U.S. private equity firms is 6,107, a slight increase from where it stood at the end

2010 (6,001), but almost double where it was just five years ago. The steady growth of PE-owned companies, pictured in the ch

below, shows not only the growth of the industry since 2005 but also how the imbalance of new investments to exits has led to reco

porolio sizes. The sustainability of this growth is quesonable, and likely why the growth appears to be leveling off in 2011. The fis that at some point all of these companies will have to be sold by their investors; some, like the 1,000 that are over seven years

(dark blue region), sooner than later. These mature porolio companies represent prime opportunies for other PE firms a

strategic acquirers with cash available for investments and acquisions.


Number of PE-Backed Companies Median Holding Period

* Q

This chart breaks down the current 6,107-company private

equity overhang by the date of original investment. Using

the current median holding period of five years, this chart

shows that there are almost 2,000 companies that are past

due for an exit and approximately another 2,000 more that

are within a year of it. It will be worth watching the

inventory levels for 2006-2008 vintage investment closely

to see if PE firms will be able to exit them in good me or if

they will lead to a serious case of porolio indigeson.

The median me to final exit from inial investme

climbed to almost five years by the end of the first half

2011, a new record. The reason for the connued growth

1H 2011 has been the need for PE firms to hold on

companies that are ripe for an exit in hopes of realizing

higher valuaon on the back of another quarter or two

earnings growth. The median holding period will lik

connue to increase as PE firms work through th

inventory of aging porolio companies.

Private Equity Company Inventory


All Previous

Years


6/18

Private Equity Exit AcvityHaving established the importance of private equity exits, what does the current U.S. private equity exit acvity actually look lik

The two charts below detail the number of exits and the aggregate exit deal amount for each quarter since the beginning of 200

and for each year since 2006. They show a mixed picture, but the general trend over the past couple of years is towards an increa

in acvity, although on a level well below the 2006/2007 peak and far from the level needed to significantly reduce the currecompany inventory. The financial crisis and ensuing economic recession clearly put a big brake on almost all private equity e

acvity in 2009, much like it did for private equity investment. However, since then acvity has picked up and was especially spurr

on in the fourth quarter last year with the scheduled expiraon of certain tax breaks (which were eventually extended). This had t

effect of clearing out the pipeline of exit deals going into 2011, leading to the dip in acvity during the first quarter of this year. T

good news was that the second quarter showed improvement and was actually the second best quarter for exits since 2008.

The profile of a typical exit during the first half of 2011 was for a company in the Business Products & Services or Consumer Produ

& Services industries, likely located east of the Mississippi and valued at somewhere around 8x EBITDA with a price tag of betwe

$50 million and $250 million. The buyer was usually another company acquiring it for strategic purposes, almost certainly

U.S.-based company.

There are a number of posive trends developing in exit

acvity and the second half of the year should see a

connued upck in acvity. Private equity firms are paentinvestors that have proved themselves in the past to have an

uncanny ability to exit companies at the opmal point.

However, that paence is wearing thin for private equity firms

and even thinner for their limited partners, who have been

waing six to seven years now to see profits on their

investment. These factors, combined with the sheer number

of mature PE investments, are likely to drive exit acvity

during 2H 2011 and well into 2012.


Exits by Quarter

Exits by Year

* Q



7/18

Despite a decrease in the median exit size during 1H 2011 from 2010 highs, the median exit for private equity-backed compan

connues to be above the levels seen before 2010. For corporate acquisions, the size drop was by 23% to $170 million, and f

secondary buyouts, it was 16% to $295 million. The B2B industry, accounng for one-third of PE exits, was the key contributor to t

decline of exit deal sizes in the first half of 2011, with the industry median exit size dropping to $120 million from $168 million

2010. The drop in median exit size is likely a reflecon of smaller companies being sold by PE firms, as opposed to a decline in t

values of the PE companies being sold, since the exit size/EBITDA mulple has held steady.


Median Exit EBITDA Mulple

Median Exit Value ($M) by Exit Type

The median exit mulple (exit deal size/EBITDA) for private equity-backed exits so far in 2011 has stayed on-par with 2010 at 8

Under the surface though mulples have been changing in the first half of 2011, strategic acquisions have increased to 9.6x fro

8.5x, while exit mulples for IPOs and secondary buyouts decreased. Exits in the informaon technology and energy sectors clos

with the highest mulples, both at 13.7x, followed by consumer products and services at 8x.

* Q Private Equity Exits - 2011 Mid-Year

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8/18

There were two main changes in the breakdown of exit acvity by deal size during the first half of 2011: a decrease in deals betwe

$500 million $1 billion and an increase in deals above the $1 billion mark. Despite the increase in large exits, it is important to no

that it is the lower- and middle-markets that account for 83% of private equity exit acvity. This is a posive sign for the industry,

the vast majority of private equity investments fall within this range and hopefully an encouraging sign to investors that e

opportunies are available across the company size spectrum.


Number of Exits by Size Bucket

While lower- and middle-markets see the most exits, larger exits, $1 billion and above, account for the majority of capital proceed

Private equity-backed exits above $1 billion totaled $42.47 billion in aggregate deal size and represented 70% of exit sales in the fi

half of 2011. The largest part of that total comes from exits above $2.5 billion, which during the first half of 2011 totaled eight, fi

more than in all of 2010. The top industry for these mega exits in 2011 has been Healthcare, having tallied four to its credit so far

Exit Deal Size by Size Bucket

* Q Private Equity Exits - 2011 Mid-Year

www.granhornton.comwww.pitchbook.com | [email protected] | 1-877-26


9/18

Private equity exits were fairly geographically dispersed du

the first half of 2011. The Midwest led the pack with 19% o

exits, followed by the Northeast and Southeast with 18% oexit acvity apiece. The two regions that have experie

recent increases in exit acvity are the Northeast

Mid-Atlanc. The Northeast saw a 50% increase in acvity f

the first half of 2010 and the Mid-Atlanc a 53% increase f

the second half of 2010. Falling out of favor for exits during

first half of 2011 have been companies in the West Coast

Southwest regions, both posng declines in exit deal acvi

over 30% compared to the first half of 2010.


Exit acvity was dominated by the Business Products & Serv

and Consumer Products & Services industries during the

half of 2011. Informaon Technology connued to hol

posion as the third most acve industry for the third

running, followed closely by Healthcare. Exit acvity was win the remaining sectors, a trend that reaches back to

beginning of 2009. In the B2B industry, exits were evenly

between the Commercial Products and Commercial Serv

sectors with 26 deals apiece. In the B2C space, exit acvity

more widespread with thirteen in the Consumer Non-Dura

sector, nine in Consumer Durables and seven in Transporta

In the remaining industries, there were pockets of concentr

exit acvity, such as the sixteen exits from Soware compa

nine from Healthcare Services companies and six from En

Services companies. The industries that saw the biggest de

in exit acvity during 1H 2011 compared to 1H 2010 w

Energy with a 36% drop, Materials & Resources with a decline and Financial Services with a 20% decline.

Exit by Region 1H 2011

Exit by Industry 1H 2011



10/18

The Business Products and Services (B2B) industry, w

includes the Commercial Products, Commercial Services

Transportaon sectors, has led private equity exit acvity o

the past three years with a total of 282 transacons. This wo

be expected as the B2B industry has also consistently

private equity investment. There were 59 exits comple

during the first half of 2011 in the industry, an increase of 3

from the same period last year and totaling $9.45 billio

aggregate. Both the Commercial Products and Commer

Services sectors ended the first half with 26 exits each.


Business Products and Services

Exit by Sector

The Consumer Products and Services (B2C) industry, wh

includes the Apparel; Consumer Durables; Consu

Non-Durables; Media; Restaurants, Hotels and Leisure; Re

Transportaon and Consumer Non-Financial Services sect

saw a total of 233 exits over the past three years. There w

42 exits in the first half of 2011, a decrease of 20% from

same period last year. The most acve sector in the

industry was Consumer Non-Durables with thirteen e

which was led by the Food Products sub-sector with

transacons. The 42 exits in 1H 2011 totaled $6.6 billion, le

$2 billion of exits in the Consumer Durables sector.

Consumer Products and Services

The Informaon Technology (IT) industry, which includes

Communicaon and Networking, IT Hardware, Semiconduc

IT Services and Soware sectors, saw 166 exits completed in

past three years. The first half of 2011 ended with 32 compl

exits, an increase of 14% from the same period last year.Soware sector led the first half of 2011 with sixteen compl

exits, followed by the Communicaons and Networking se

with six. The combined total of the industrys exits was $

billion for the first half of 2011, the lowest amount of

industry.

Informaon Technology



11/18

The Healthcare industry, which includes the Devices

Supplies, Healthcare Technology Systems, Pharmaceucals

Biotechnology and Medical Services sectors, saw a total of

exits during the last three years. There were 26 exits comple

during the first half of 2011, on par with the same period

year. The most acve sector in the Healthcare industry

Medical Services with nine exits. The Healthcare industry

the most acve industry in terms of capital proceeds during

first half of 2011 with a total of $18.2 billion.


Healthcare

Exit by Sector

The Financial Services industry, which includes the Cap

Markets and Instuons, Commercial Banks and Insura

sectors, completed 55 exits in the past three years. With o

eight completed transacons in the first half of 2011,

industry was the least acve industry in terms of private eq

exits. The industry has seen a very low level of exit ac

stretching back a number of years despite a significant amo

of past private equity investment. This will be one industr

keep an eye on to see if and how and when private equity fi

are able to successfully exit their porolios of mat

investments.

Financial Services

The Energy industry, which includes the Equipm

Exploraon, Producon and Refining; Energy Services

Ulies sectors, has seen only 57 exits in the past three ye

a number equivalent to only about 15% of the 374 Ene

companies PE firms invested in during this same me framtotal of nine exits were completed in the first half of 201

36% decrease from the same period last year. Energy Serv

was the most acve sector in the Energy industry during

first half of 2011 with six completed exits totaling $4.3 billio

Energy



12/18


Internaonal Company Exits by U.S. Investors

Consumer Products and Services (B2C)

This chart details the exit acvity of non-U.S. company investments sold by U.S. private equity firms over the last seven and a h

years. Western Europe and Northern Europe have not surprisingly been the most acve regions, accounng for over half of the U

PE investor internaonal exits over the last few years. Europe aracts a significantly higher number of U.S. PE investments compar

to other regions, and the large exit volume is likely a reflecon of this investment trend. So far in 2011, there has been a clear jum

in exit acvity in China and Canada, a trend worth monitoring.

Internaonal Buyers in U.S. Company Exits

U.S. PE firms tradionally look to sell their porolio companies to other U.S. companies and investors, but this has been chang

over the last few years. The amount of PE-backed companies sold to non-U.S. investors or companies now accounts for about 10%

all exits. With the Canadian dollar on par with the U.S., Canadian investors and companies are finding a lot more opportunies sou

of the border and have accounted for almost 40% of non-U.S. buyer acvity in 2011. European buyers have slightly decreased th

acvity from years past, while Chinese buyers have stepped up to account for about 15% of non-U.S. buyer exits.

* Q Private Equity Exits - 2011 Mid-Year www.granhornton.comwww.pitchbook.com | [email protected] | 1-877-26


13/18


Number of Exits by Exit Type

When it comes to fully exing investments (not just generang some liquidity) private equity firms rely heavily on three ma

strategies: sales to strategic acquirers (corporate acquisions), sales to other private equity firms (secondary buyouts) or taking t

company public (IPOs). Over the years, the mix of these exit strategies has largely stayed consistent with corporate acquisio

accounng for the majority, followed by secondary buyouts and then IPOs. So far in 2011, there has been lile change to the stat

quo, as shown by the breakdown of exit types in the stacked bar chart below. However, in the 4Q 2010 exit rush, there were a lar

number of secondary buyouts, 66 to be exact, as private equity firms turned to other private equity firms. There are mulp

explanaons for this, including PE firms need at the me for the quick closing ability of PE-to-PE deals and the easy sourcing

buyers from exisng industry relaonships.

Percentage of Exits by Exit Type

The first half of 2011 showed that the different exit

strategies were firing on all cylinders for private

equity investors with strong compeon from

strategics and buyout firms in aucon sales and

more successful IPOs than in years past. There are

currently a plethora of posive trends occurringacross corporate acquisions, secondary buyouts

and IPOs that bode well for the second half of 2011

and on into 2012. They are covered in more detail

on the following pages.



14/18


Corporate Acquision

Companies (strategic acquirers) have long been the biggest buyers of private equity-backed companies and that shows no sign

changing this year with 101 such deals totaling $39.5 billion completed in the first half of 2011. Over the past five years corpora

acquisions have accounted for about 60% of PE exit deals, although this has dipped slightly with the recent increase in IPOs a

secondary buyouts. The median corporate acquision deal amount so far in 2011 has been $170 million, the second highest amou

ever as PE firms take advantage of the deep pockets of strategics. Among the companies buying PE companies in 2011 are a numb

of Fortune 500 companies such as General Electric (NYSE: GE), Coca-Cola (NYSE: KO), Sara Lee (NYSE: SLE) and Southwest Airlin

(NYSE: LUV), as well a number of medium sized businesses such as Loomis Fargo, Saputo Cheese and Helen of Troy (NASDAQ: HE

The industry breakdown of corporate acquision deals in 2011 has largely been spread out equally among four main industries, b

looking deeper, there are clusters of acvity around a few sectors, mainly Commercial Products, Consumer Non-Durabl

Pharmaceucals and Biotechnology, and Soware. With the amount of cash on corporate balance sheets and the need f

companies to find growth in the current low growth environment, the dynamics for more corporate acquisions certainly exist a

could lead to a busy rest of the year.

Corporate Acquisions by Industry - 1H 2011

*

Median Holding Period

Number of Coroprate Acquision Exits



15/18


Secondary Buyout


Private equity to private equity deals, known as secondary buyouts, have received a lot of aenon this year, but so far there has n

been the speculated increase in these deals. They have been chugging along at around 28% to 32% of exit deal flow for the last tw

and half years with the excepon of 4Q 2010, when there was a spike in secondary acvity. During 4Q 2010, there were 66 seconda

buyouts with a combined deal value of $23.5 billion. It took the first two quarters of 2011 to reach 66 secondary buyouts totali

only $12.4 billion. The secondary buyouts so far in 2011 have been disproporonally centered on the Business Products and Servic

industry with 29 deals, followed by the Consumer Products and Services industry with 15 deals.

In 2011, secondary buyout exits have on average come five years aer a PE firms inial investment in the company. This is in linwith what was seen in 2010 but a full year longer than what it was between 2006 and 2008. All of the condions are in place for

increase in secondary buyout acvity with a $470 billion private equity capital overhang and a record inventory of 4,633 PE-back

companies at or beyond the normal exit period. Look for more secondary buyouts to take place in the second half of 2011 and rea

gain momentum in 2012.

Secondary Buyouts by Industry - 1H 2011

*

Number of Secondary Buyout Exits



16/18


Inial Public Offering


Private equity firms have faced a rough me with the public markets over the past several years with only 101 IPOs completed sin

the beginning of 2008, as compared with the 118 in 2006 and 2007. The good news though is that PE firms in the past 18 mont

have been able to take advantage of the recovering stock market by taking 63 companies public. Leading the charge was Hospit

Corporaon of America (NYSE: HCA) with the largest PE-backed IPO ever at $4.3 billion, as well as other large offerings such as Kind

Morgan (NSYE: KMI) and The Nielsen Company (NYSE: NLSN). Most of the companies though were more modest in size with t

median market cap at me of IPO being $835 million.

It is important to note that in most of the recent private equity company IPOs the PE firms are selling very few of their shares, if aMost IPOs proceeds are instead being used by the companies for debt repayment and other corporate purposes. This drawn out e

is likely why there is a four-year hold me before IPOs are completed, as opposed to five years for both secondary buyouts an

corporate acquisions. IPOs are highly affected by the equity markets, but with 82 PE-backed companies sing in IPO registrao

there is potenal for an acve second half of the year.

IPOs by Industry - 1H 2011

* Q

Number of IPO Exits



17/18


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