Fundraising is up, but mezzanine deal activity is trending down
Private Equity fundraising is at an all-time high, with dry powder and capital overhang surpassing its peak levels. In 2017, according to Preqin, a ten-year high of $282bn was reached in terms of capital raised for buyout fund managers. The second most active year for buyout fundraising was 2008 with $230bn (see Preqin post and chart detailing the past ten years). While there is tremendous growth in fundraising, SPS is noticing (and has been reporting) another trend: mezzanine deal activity has slowed significantly in the past year.
2017 Mezzanine activity down 37% from 2015
Over the 36-month period of January 2015 through December 2017, SPS has reported in its Mezzanine Market Perspective a decline in deal volume for Mezzanine transactions. Of the deals that traded in this time, volume has fallen by 37% from 597 deals in 2015 to 378 transactions in 2017.
Of the more than 1,500 combined mezzanine transactions that traded over this three-year period, 18% of deals traded in the Industrial: Equipment & products subindustry, followed by 10% in IT: Software & services and 5% in the Services: Misc., asset light.
The vast majority of mezzanine deals have traded in the sub $250MM EV range. Breaking out the subindustries by deal size, and more than 93% of the IT: Software & services deals that traded from 2015 – 2017 closed in the Sub $250MM EV range.
$10 – $49 MM EV range:
- Industrial: Equipment & products (184)
- IT: Software & services (106)
- Services: Misc., asset light (52)
$50 – $249 MM EV range:
- Industrial: Equipment & products (70)
- IT: Software & services (35)
- Media: Marketing & sales services (21)
Greater than $250 MM EV range:
- Industrial: Equipment & products (10)
- IT: Software & services (6)
- Healthcare: Specialty clinics & centers (4)
- Energy: Producers (3)
Mezzanine lending across North America
For the three-year period, the Great Lakes was the most active region for Mezzanine transactions. It’s not a surprise, given the robust number of Industrial deals requiring mezzanine financing.
Even as mezzanine activity has steadied downwards,many noteworthy deals have closed this year that were supported with subordinated debt:
- In March, Maranon Capital supported the acquisition of the California based Specialty Sales by Benford Capital Partners with mezzanine and equity co-investment. Specialty Sales is a provider of automated hoof bath systems and the preventative hoof care treatment products utilized in these systems for commercial dairies in the United States.
- Also in March of this year, Business Development Bank of Canada supported Legado Capital’s acquisition of Kivuto Solutions Inc with mezzanine financing. Kivuto Solutions offers academic software, e-texts and other digital resources for the academic industry.
Last week’s deals today
May 21 – May 25, 2018
~71 deals traded!
Deal of the week
Last week, Marlin Equity Partners acquired the Providence based Virgin Pulse Inc, a provider of employee health engagement services. Evercore Partners acted as the sell-side advisor.
Most active subsectors
- IT: Software & services
- Industrial: Equipment & products
- Materials: Chemicals, minerals, & plastics
Most active cities
- New York
- San Francisco