JT Research Review
Valuation News You Can Use
April 2008 - Vol 2, Issue 2
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.

The average debt leverage for a quality specialty chemical deal was 7 times Ebitda in October 2007. "Now the absolute max is 4.5 times," says David Bradley, managing director and global chemicals head at UBS. However, "the market is robust for properties with robust chemical company interest," he adds.

"Basic chemical deal multiples in 2007 averaged 8.2 times Ebitda, up from 7.1 times in 2006, and flat with 2005 levels. Specialty chemical Ebitda multiples were 10.3 times Ebitda, essentially flat, versus 10.5 times in 2006, 9.6 times in 2005, and 9.3 times in 2004. "The market is neither a seller's nor buyer's market but somewhere in between and drifting sideways," Young says. Specialty chemical valuations should continue to move "sideways" in the near term, but valuations on specific commodity chemical assets could face pressure "as the downward trend in the commodity chemical cycle is more visible."

Source: Walsh, Kerri and Robert Westervelt. "Financial Services: Market Woes Strain M&A Activity." Chemical Week. March 10, 2008, pg. 24.
"Publishers like Scripps, Hearst, may buy a vertical ad network that dovetails with the content of their magazines. For price, you may have to stomach dilution. The good thing about the ad agencies is that they still trade at 10x to 11x Ebitda. They can be competitive. Anyone can be competitive with Google. The ad agencies can offer pretty attractive pricing."

Source: Marino, Jonathan. "Tick Tock Tech." Mergers & Acquisitions. March 2008, pg. 52.
Independent insurance agencies valued by Atlanta- based Reagan Consulting "generally result in a 5.5- to 6.5-multiple of EBITDA," says principal Tom Doran. "If you take the same agency and call Wells Fargo, Arthur J. Gallagher or any number of highly motivated buyers, you would find that a third-party buyer would likely pay between seven and nine times the EBITDA, or even more ."

Source: Cavenaugh, Bonnie Brewer. " "What's Your Agency Worth?" Best's Review. February 2008, pg. 28.
Trevor Bohn, vice president at RSM EquiCo Capital Markets (Costa Mesa, Calif.), who provides significant mergers and acquisition analysis for the aerospace industry, talked at length about aerospace supplier tiers, potential for sales and purchases, and strategic and private equity buyers in the aerospace and composites markets. He emphasized that Tier II and Tier III fabricators that have fixed aerospace contracts are attractive targets for buyers because they provide known quantities of orders, although a fabricator ripe for acquisition also must have a robust EBITDA (earnings before interest, taxes, depreciation and amortization), strong engineering and R&D and sales of at least $50 million (USD). He told the audience that In his experience, most aerospace/Tier II and III sales have been six to eight times EBITDA and range from $100 million to $1 billion (USD) in value.
The current issue of Inc. Magazine is titled "What is Your Company Worth?" The website has a couple of good articles from the magazine, but the print edition has an excellent industry-by-industry study of deal prices and multiples. The data in the study is generated by BV Resources (Pratt's Stats, etc.)
According to Dow Jones VentureSource, venture-backed M&A activity dropped from 110 deals in 4Q07 to 80 deals in 1Q08. The largest share of investments was in the software industry, followed by healthcare services/medical devices and equipment.

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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