WEST CONSHOHOCKEN, Pa., March 12, 2012 /PRNewswire/ -- The enterprise value of acquired firms remains the key driver of private-equity deal terms, dictating not only prices but also indemnification caps and escrow demanded by buyers against breaches of general representations and warranties, according to GF Data Resources LLC ("GF Data").GF Data reported its findings in its Spring 2012 M&A Snapshot, a detailed, semi-annual look at the mechanics of private equity-backed transactions completed with total enterprise values (TEV) of $10 to $250 million. The data base includes key deal term data on about 300 transactions completed since January 1, 2008, as well as valuation, volume and leverage detail on a larger pool of more than 1,300 transactions dating back to 2003.
In 2011, caps on indemnification against breaches of general reps and warranties averaged 20.2% of purchase price. Indemnification caps on deals with values between $10 and $25 million were almost 50% higher than deals in the $25-50 million value range. GF Data's M&A Snapshot shows a slight decrease in indemnification caps over those in 2010. Manufacturing deals, however, showed an increase in the average cap size over each of the past three years across all the size categories stratified in the report. Escrow as a percentage of Total Enterprise Value held steady with 2010 levels in each of the size stratifications.
The current M&A Snapshot also indicates that deal size is highly correlated to other deal terms such as escrow / holdbacks, survival periods and basket – the amount of damages over which liability is triggered on the part of the seller. The Spring 2012 Snapshot includes indemnification-cap data in four business categories: manufacturing, business services, health-care services and distribution. In 2011 indemnification caps remained in the 20 percent range, except in the health-care services sectors, where the caps demanded by buyers exceeded 30 percent.
"GF Data has created the key reliable source for material deal terms on private transactions in the $10-to-250 million enterprise value range," said James M. Hill, partner and executive chairman of Benesch, Friedlander, Coplan & Aronoff LLP in Cleveland, and chair of that firm's private equity group. "The data set allows for differentiation by business category. The information GF Data provides on indemnification caps, basket, and escrow / holdback gives our firm the relevant benchmarking data we need to assist our acquisitive or selling clients as to true and current 'market' terms."
About GF Data
GF Data provides data on private equity-sponsored M&A transactions with enterprise values of $10 to 250 million. GFDR gives private equity firms and other users more reliable external information to use in valuing and assessing M&A transactions.
GF Data collects transaction information from private equity groups on a blind and confidential basis. One hundred and eighty five private equity firms have provided information on deals included in this report.
Data contributors and paid subscribers receive two products -- high-level valuation, leverage and key deal term data in these electronically delivered quarterly reports, and continuous access through the web site to detailed valuation data organized by NAICS industry code.
Spring 2012 Report Parameters
One hundred and eighty five participating private equity firms have provided data on 1,614 transactions closed between January 1, 2003 and December 31, 2011. One hundred and sixty six of these firms are active contributors.
This report focuses on 1,332 transactions valued at $10-250 million, and at multiples ranging from 3 to 12 times Last Twelve Months Adjusted EBITDA.
SOURCE GF Data Resources LLC