JT Research Review
Valuation News You Can Use
October 2007 - Vol 1, Issue 3
In This Issue
Greetings!
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Welcome to JT Research's News You Can Use, focusing on valuation research. This issue's topic is comparable transaction (M&A) research.

"Private equity giant Bain Capital paid about $2.1 billion to acquire Guitar Center, which has 198 Guitar Center stores, and 97 Music & Arts Center stores....The skinny: The guitar industry is growing faster than the overall economy....at about a 5.5% rate, where piano growth is less than 1%," writes Jim Tierney in Multichannel Merchant. (Sept. 2007, pg. 10.).

The multiple Bain paid for Guitar Center is 12.1 times EBITDA, Solomon says. "That's very high."
"Owners of high-performing agencies....can remain confident that the value of their agencies is rock- solid," writes Wayne A Walkotten.... "In 2006, banks paid an average of 7.9 to 8.2 times EBITDA for the "foundation" agencies they purchased. Public brokers paid an average of 7.5 to 7.9 times EBITDA for the agencies they bought in 2006." (American Agent & Broker, May 2007, pg. 66+.)

"The current average valuation for large public insurance brokers is approximately 10 times EBITDA. However, the range varies from a low of 7 times EBITDA to a high of roughly 14 times EBITDA," wrties Jeff Balcombe of Business Valuation Advisors.
"Based on reported financial information, the median revenue multiples were very similar for U.S. transactions as a whole and for the sector (1.4 times versus 1.6 times). However, the median EBITDA multiples were vastly different: 6.4 times and 14.6 times, respectively," writes Charles R. Carson in Automation World.

"Acquirors in the automation and control technology sector may be willing to pay a larger multiple of cash flows than those in the rest of the market because of the risk/reward ratio and intellectual property that are salient to technology companies in particular," says Carson.
"This is the hottest M&A market ever known to mankind," said H. Hiter Harris III, co-founder of middle- market M&A adviser Harris Williams & Co.

"As such, valuations have been pushed up. For all middle-market transactions across all industries over the past 12 months ending in April, the median multiple was 10.3 times EBITDA, compared with 9.7 times a year earlier and 9.7 times for all of 2006, according to research from Baird," writes Matthew Quinn in Financial Week.
According to FactSet Mergerstat, the business software industry has been on a multi-year binge. The industry is highly fragmented, there is a growing dominance of a handful of firms, and many owners may want to sell. .

"Some niches within the software industry have garnered multiples of 15 times EBITDA and up." according to Harris Williams & Co. (Financial Week, June 18, 2007.)

Many of our clients ask us to look for comparable acquisitions because we know what to look for and where to find it. We subscribe to Mergerstat, Thomson Financial M&A, Done Deals and Pratt's Stats. We've also used Bureau van Dijk's Zypher database, the most complete source of global transactions. Industry multiples can often be found in journal articles, as shown in the abstracts above, in addition to investment bank reports.

Contact us for your next comparable transaction search. Not only do we save you time and money, we give you the confidence that you haven't missed a transaction.

Sincerely,
Jan Davis
JT Research LLC

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