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ACTIVITY SLIDES AGAIN, BUT BUYERS STILL PAYING UP FOR QUALITYPAGE 5»

HE ALT HCARE & I T SKE W MULT IPL E S

PAGE 7»

L E AGUE TABL E SPAGE 16»

I N P A R T N E R S H I P W I T H

US

3Q 20 16

C O - S P O N S O R E D B Y

PE E X I T VAL UE DECL INE S3 1% QOQPAGE 10»

FINANCIAL TRANSACTIONS & REPORTING | MARKETING & COMMUNICATIONS FOR REGULATED INDUSTRY | CUSTOMER CONTENT & COLLABORATION SOLUTIONS

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Credits & ContactPitchBook Data, Inc.

JOHN GABBERT Founder, CEO

ADLEY BOWDEN Vice President,

Market Development & Analysis

Content

NIZAR TARHUNI Senior Analyst

DYLAN COX Analyst

BRYAN HANSON Data Analyst

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Contact PitchBook pitchbook.com

RESEARCH

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EDITORIAL

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SALES

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COPYRIGHT © 2016 by PitchBook Data, Inc. All rights reserved. No part of this publication may be reproduced in any form or by any means—graphic, electronic, or mechanical, including photocopying, recording, taping, and information storage and retrieval systems—without the express written permission of PitchBook Data, Inc. Contents are based on information from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Nothing herein should be construed as any past, current or future recommendation to buy or sell any security or an offer to sell, or a solicitation of an offer to buy any security. This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to be relied upon as such or used in substitution for the exercise of independent judgment.

Contents

Introduction 4

Overview 5-6

Deal Multiples & Debt Levels 7

Q&A: Merrill Corporation 8

Deals by Size & Sector 9

Exits 10-11

Q&A: Murray Devine 12-13

Fundraising 14-15

3Q 2016 League Tables 16

3 PITCHBOOK 3Q 2016 US PE BREAKDOWN

CO-SPONSORED BYSPONSORED BY

A continued decline for US PEIntroduction

Nothing’s changed. That phrase can more or less some up the path in which

private equity has moved over recent quarters. Through the third quarter of the

year, transaction counts have fallen and while total capital invested at first sight

looks high, a significant proportion of that comes from one deal, so we don’t

think we can take that aggregate figure as an adequate representation of the

entire market’s general sentiment.

In today’s context, dealmakers have to be more prudent. The capital to get deals

done isn’t an issue but the exit markets are dryer and lenders are more skeptical

around the quality of, and the level at which they can lend to certain companies.

Further, there is a natural and cyclical element to the slow manner in which the

market has moved. Over recent years, a general partner could pull the trigger on

a few deals with the expectation that the general economy and market was more

accommodating to help underpin growth. Today, top-line revenue is increasingly

difficult to drive and earnings growth has remained sluggish, so many managers

are focused on building “recession-proof” businesses that can sustain any

external shocks we may get in the coming years, whether that be domestic or

foreign.

That trend will remain in place. And despite some limited partners cutting

allocations, the overall industry will continue to attract significant levels of

patient capital that can be put to work over time.

We hope this report and our data helps inform your decision-making process.

Please feel free to reach us at [email protected] with any questions or

comments you may have.

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pitchbook.com

The PitchBook Platform for private equity

NIZAR TARHUNI

Senior Analyst

4 PITCHBOOK 3Q 2016 US PE BREAKDOWN

CO-SPONSORED BYSPONSORED BY

Deal value has plateauedOverview

Through the third quarter of 2016,

nothing has changed in terms of

the trend around total PE deal volume.

Activity has consistently legged lower

quarter over quarter, yet if we look

at aggregate transaction value, the

numbers can be a bit deceiving. Three

quarters through the year, total capital

invested came in at $484 billion across

2,477 completed deals, which puts

2016 deal value on pace to come in

relatively flat with 2015 and volume set

to come in down nearly 18% YoY. On

a quarterly basis, the macro market

landscape looks even more perplexing.

3Q saw $171 billion invested across 662

transactions and while that volume

figure represents a quarterly drop

of more than 26%, that aggregate

transaction value number points to a

near 10% jump over what we saw in

Third quarter deal count wanes considerably

US PE activity by quarter

Through 3Q, volume is off pace but value remains stable

US PE activity

$501

$930

$369

$163

$356

$411

$470

$511

$644

$642

$484

2,785 2,7192,674

3,379

4,037

2,477

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Deal Value ($B) # of Deals Closed

$70

$79

$83

$124

$100

$101

$91

$118

$92

$95

$96

$186

$102

$114

$125

$170

$153

$153

$168

$169

$152

$146

$190

$155

$157

$156

$171

643

595

759710

838 727 779861

1,0531,017 1,024 1,002 916

662

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

2010 2011 2012 2013 2014 2015 2016

Deal Value ($B)

# of Deals Closed

Source: PitchBook

*As of 9/30/2016

Source: PitchBook

*As of 9/30/2016

5 PITCHBOOK 3Q 2016 US PE BREAKDOWN

CO-SPONSORED BYSPONSORED BY

Add-ons retain a commanding proportion

US add-on % of buyout activity

Traditional buyouts are relatively down in 2016

US PE deal flow by type

1,00

3

1,34

6

1,03

0

704 1,

077

1,30

9

1,46

8

1,38

9 1,81

3

1,89

1

1,18

3

1,23

1

1,43

9

1,07

7

612

956 97

4 1,16

0

952

1,16

2

1,16

9

668

45%48% 49%

53% 53%57% 56%

59% 61% 62%64%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Non Add-on

Add-on

Add-On % of Buyout

2Q, a figure we don’t think speaks to

the true dynamic of the market.

During the back half of 2015, we

framed our analysis to exclude the

$55 billion Kraft-Heinz merger.

That deal was a clear outlier; as the

diligence process in transactions

of that magnitude typically spans

multiple quarters, we thought it didn’t

adequately represent the sentiment

of the market during 2H 2015. Last

quarter, we had a similar situation,

driven by the $60 billion Silver Lake-

backed Dell-EMC combination. If we

look at the data without the Dell-

EMC transaction, we get a total 3Q

deal value figure of just $111 billion,

which reflects a rather considerable

29% QoQ drop in deal value. From

a corporate M&A perspective, we

certainly note the strategic need to

put together larger, blockbuster-

type deals in today’s slow-moving

macro environment. Yet historically,

we haven’t seen pure PE transactions

come in at the level of either the Kraft-

Heinz or Dell-EMC deals. In fact, if we

look at all PE transactions over $20

billion dating back to 2000, the closest

deals in terms of total enterprise value

occurred in 2007, which encompassed

the KKR-backed buy of Energy

Future Holdings ($48.1 billion) and

the Blackstone-backed acquisition of

Equity Office Properties ($39 billion).

Thus, although 2016 deal value is on

pace to come in flat with what we

saw in 2015, we think a more accurate

interpretation of both 2015 and 2016

is a market that has for the most part

seen both value and volume move

more in lockstep than what the data

depicts at first glance.

Overall, dealmakers have continued to

look lower down the value spectrum to

find relative value as multiples remain

historically high. Despite the drop

off in deal counts across the board,

we’ve seen transactions valued under

$100 million represent the largest

proportion of completed deals since

2009. Three quarters through 2016, an

aggregate of 1,750 deals were closed

at an enterprise value of under $100

million, amounting to over 70% of all

completed deals. This also speaks

further to the seemingly never-ending

trend of PE players needing to utilize

the buy-and-build strategy to help

blend down purchase multiples in an

expensive market. To that point, 2016

has seen add-on deals account for the

highest percentage of PE deals we’ve

tracked in at least a decade (64%).

Source: PitchBook

*As of 9/30/2016

Source: PitchBook

*As of 9/30/2016

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

*

Buyout/LBO Add-on Recap PE Growth/Expansion Pla�orm Crea�on

6 PITCHBOOK 3Q 2016 US PE BREAKDOWN

CO-SPONSORED BYSPONSORED BY

Valuations continue to climbDeal multiples & debt levels

Starting last quarter, we combined

our PE and M&A transaction

multiple datasets to capture a more

comprehensive and accurate view of

the deal markets in terms of pricing

and debt usage. With that clarification,

valuation-to-EBITDA multiples through

3Q 2016 are at 11.2x—the highest level

since at least 2010 and up from 10.2x

in 2015.

4.8x 5.

5x

5.0x 6.

3x

5.6x

5.7x

5.4x

3.7x

4.1x

3.7x

3.9x

4.3x 4.5x 5.

8x

8.5x

9.6x8.7x

10.2x 9.9x 10.2x

11.2x

2010 2011 2012 2013 2014 2015 2016*

Debt / EBITDA Equity / EBITDA Valua�on / EBITDA

56.5% 57.3% 57.4%

61.7%

56.7% 55.9%

48.4%

40%

45%

50%

55%

60%

65%

2010 2011 2012 2013 2014 2015 2016*

To this point, 2016 has seen an uptick

in private investment in the healthcare

and IT sectors, both of which tend to

trade at higher EV/EBITDA multiples

due to their high perceived potential

for growth. As more and more deal

activity moves toward these high-

growth and high-multiple sectors,

some of the change we see may not be

in the valuations themselves, but in the

migration of PEGs to these industries.

15% of PE deals thus far in 2016 have

been in the healthcare industry, and

an additional 17% have taken place

in IT, both the highest figures in our

datasets.

As we have touched on in prior

editions of this report, the wider lack

of earnings growth and ample capital

availability have also contributed

to the current record-high multiple

environment across the M&A sphere.

According to Factset, companies in

the S&P 500 held a combined cash

and short-term investment balance of

$1.46 trillion at the end of July 2016—

the second highest total in at least 10

years, allowing companies to use their

balance sheets to grow inorganically

and possibly accept lower returns in

the short term.

Transitioning to debt usage, through

the third quarter, the median

debt percentage on PE and M&A

transactions was 48.4% of enterprise

value (EV). This figure is down from

what we reported a quarter ago,

but the broader trend is that more

and more equity is being used to

complete deals. While low compared

to EV, median debt usage is at 5.4x

EBITDA, down from 2013-2015, but still

relatively high on a historical basis.

Median EBITDA multiples of US M&A (including PE buyouts)

Median debt percentages for US M&A (including PE buyouts)

Source: PitchBook

*As of 9/30/2016.

Figures are likely to adjust as more data is collected.

Source: PitchBook

*As of 9/30/2016

7 PITCHBOOK 3Q 2016 US PE BREAKDOWN

CO-SPONSORED BYSPONSORED BY

To kick things off, what is your broad

take on the current private equity

landscape?

Generating alpha through traditional

PE strategies is about as difficult

as it’s ever been. Strategies such as

growth investing may also become

more popular, as thereby firms

can avoid some price pressure and

potentially gain exposure to smaller,

faster-growing companies. It’s not

a new weapon in PE firms’ arsenals

but one that has not been as utilized

as much over the past several years,

but niche growth strategies have

benefited certain firms as of late, such

as TSG Consumer Partners. Notably,

however, such investments may not

come directly from funds raised

specifically for growth or expansion

opportunities, but rather from more

multipurpose pools of capital, as the

raising of growth-dedicated vehicles

has declined in 2016 to date.

Do you foresee the capital-rich

environment remaining in place for

the foreseeable future?

It’s not that all limited partners are

clamoring to increase their allocations,

but rather, at the very least, maintain

them, or commit to even larger

vehicles run by the most experienced

and best-performing managers. This

has led to increased concentration

and segmentation in both fundraising

Richard A. Martin, Jr. Senior Director

Merrill Corporation

Richard A. Martin, Jr. is a Senior Director at Merrill Corporation, responsible for Merrill DataSite’s global marketing group. His 18 years of marketing experience working and residing in the US, U.K. and Europe has developed Martin’s understanding of disparate business cultures and the global financial industry, evidenced by a successful record of growing businesses. Martin currently works closely with financial professionals to provide first class virtual data room (VDR) solutions for their transaction and due diligence needs. Prior to joining Merrill, Martin led the hedge fund marketing strategy group at Morgan Stanley Capital International and the global equity product strategy group at Reuters International, London. He received his B.A. from Dartmouth College, a marketing certificate from the University of Michigan Business School and currently resides in New York City with his wife and children.

and deal flow. General partners will

wish to invest in all segments of the

market, while institutional investors

will seek out the best fund managers

in each market segment. By now,

strategies that take long-term volatility

into account are in high demand.

That could continue to encourage LP

interest, as the typical PE fund lifecycle

may now be seen more as a potential

benefit or at the least not as much of

a hindrance as it used to be. In short,

illiquidity isn’t still a positive but it

looks like less of a handicap in light of

sustained volatility.

Of those current challenges, what do

you think is most pressing for fund

managers?

Justifying the high prices that

quality companies are currently

commanding likely takes the top spot.

Correctly assessing macroeconomic

factors on a sector-by-sector basis

remains challenging, with certain

trade agreements or other political

developments such as Brexit clouding

mid-term forecasting. Coincidentally,

this is reinforcing many managers’

focus on the lower middle market,

simply because some of those

businesses are not as exposed to those

international concerns, plus, even if

prices do get overheated at those

lower reaches, total transaction values

really aren’t that lofty.

ABOUT MERRILL CORPORATION

Merrill Corporation provides technology-enabled platforms for secure content sharing, regulated communications and

disclosure services. Clients trust Merrill’s innovative applications and deep subject expertise to successfully navigate the

secure sharing of their most sensitive content, perfect and distribute critical financial and regulatory disclosures, and create

customized communications across stakeholders. With more than 3,800 people in 41 locations worldwide, clients turn to

Merrill when their need to manage complex content intersects with the need to collaborate securely around the globe.

8 PITCHBOOK 3Q 2016 US PE BREAKDOWN

CO-SPONSORED BYSPONSORED BY

US PE deals ($B) by sector

US PE deals (#) by sector

Sponsors continue to stay active primarily within the

core and lower reaches of the middle market

US PE deals (#) by deal size

Deals under $25M have accounted for over 46% of activity thus far in 2016, the highest proportion since 2009.

IT deal value through 3Q stood at $131B, the highest of any sector.

Deals over $1B make up majority of deal value in 2016

US PE deals ($B) by deal size

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

*$2.5B+

$1B-$2.5B

$500M-$1B

$100M-$500M

$25M-$100M

Under $25M

Source: PitchBook

*As of 9/30/2016

Deals by size and sector

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

*

$2.5B+

$1B-$2.5B

$500M-$1B

$100M-$500M

$25M-$100M

Under $25M

Source: PitchBook

*As of 9/30/2016

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

*

Materials & Resources

ITHealthcareFinancial Services

Energy

B2C

B2B

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

*

Materials & Resources

IT

Healthcare Financial Services

Energy B2C

B2B

Source: PitchBook

*As of 9/30/2016

Source: PitchBook

*As of 9/30/2016

9 PITCHBOOK 3Q 2016 US PE BREAKDOWN

CO-SPONSORED BYSPONSORED BY

PE-backed sales plummet Exits

After a second quarter that

showed signs of recovery, the

value of PE-backed exits fell by 31%

in 3Q 2016 to $66 billion across just

218 transactions. Three-quarters of

the way through the year, exit value

is on pace to be about 25% behind

2015. Though still high by historical

standards, the falling-off speaks

to some softening of the overall

M&A cycle—not only in PE backed

companies. Both PE-backed exits and

the wider M&A markets peaked around

4Q 2015 and have fallen substantially

since.

In what has been a very slow year

for IPOs overall, the number of exits

via public offering has dampened

accordingly. Through 3Q 2016, just

20 PE backed companies have held

an IPO, compared to 34 by the same

point last year.

Sustained dip in exit activity

US PE-backed exit activity

Source: PitchBook

$26

$40

$34

$52

$30

$54

$33

$41

$36

$47

$41

$103

$20

$31

$78

$98

$74

$60

$63

$111

$75

$112

$89

$128

$66

$97

$66

164 169 180

212255

229

196

245269

320 313 304

261

218

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

2010 2011 2012 2013 2014 2015 2016

Exit Value ($B) # of Exits

US PE-backed exit activity

$153

$220

$114

$55

$153

$158

$227

$227

$309

$404

$229

722601

771

1,065

1,223

747

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Exit Value ($B) # of Exits

While the market overall may not be

as strong as it was last year, there is

still plenty of appetite for high-quality,

high-value targets. The percentage

of exit value made up by transactions

with at least $2.5B in enterprise value

has risen each of the last two years,

and now makes up over half of the

value of US PE exits.

10 PITCHBOOK 3Q 2016 US PE BREAKDOWN

CO-SPONSORED BYSPONSORED BY

Source: PitchBook

*As of 9/30/2016

The healthcare sector has made up 32% of total exit value through 3Q 2016.

SBOs stood at 45% of all exits in 3Q 2016, while IPOs remain subdued.

11 PITCHBOOK 3Q 2016 US PE BREAKDOWN

CO-SPONSORED BYSPONSORED BY

Healthcare & B2C dominate exits by value.

US PE-backed exits ($B) by sector

Each individual sector is behind last year’s pace

US PE-backed exits (#) by sector

M&A is crucial particularly in terms of exit value

US PE-backed exits ($B) by type

Strategic buyers remain PE sellers’ salvation

US PE-backed exits (#) by type

Source: PitchBook

*As of 9/30/2016

Source: PitchBook

*As of 9/30/2016

Source: PitchBook

*As of 9/30/2016

Source: PitchBook

*As of 9/30/2016

0

200

400

600

800

1,000

1,200

1,400

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Corporate Acquisi�on IPO Secondary Buyout

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Corporate Acquisi�on

IPO

Secondary Buyout

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

*

B2B

B2C

Energy

FinancialServices

Healthcare

IT

Materials &Resources

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

*

B2B

B2C

Energy

FinancialServices

Healthcare

IT

Materials &Resources

Robert A. TribuianiManaging Director, Head of

Business Development

Murray Devine

Rob leads business development for Murray Devine, & Co. He is responsible for developing, executing and managing sales strategies that generate revenue from new and existing client relationships. He draws upon over twenty years of proven success in consultative sales, relationship management and business development in software and professional services having worked for private equity and venture capital backed emerging and growth stage companies.

Before joining Murray Devine, Rob worked as a senior business development executive for SolomonEdwards, a leading professional services firm headquartered in suburban Philadelphia that provides strategy execution services to companies from emerging to large global organizations. His principal focus was to assist clients in the Firm’s Banking & Financial Services Practice solve their critical business issues related to business transformation, accounting and finance, governance and regulatory compliance, and mergers and acquisitions. During his ten-year tenure at SolomonEdwards, Rob was consistently recognized as a top sales performer in achieving revenue targets.

Rob is a graduate of Villanova University and earned a Bachelor of Science degree in Business Administration with a concentration in Finance.

In the third quarter of 2016, total PE

deal value remained relatively flat. Do

you see anything that could shift this

trend?

Similarly to the second quarter, the

past three months have been again

marked by lingering uncertainty

among dealmakers. The summer

always seems to experience something

of a slowdown, particularly during a

year like this in which there may be

less urgency to put money to work.

But Brexit took just about everyone

by surprise in the second quarter and

definitely had a chilling effect on cross-

border M&A as we moved into the

second half of the year. You also had a

number of broken deals in the first six

months, many of which were the direct

result of government intervention.

While this may not have a tremendous

impact on certain sectors or small and

mid-market deals, it does create yet

more uncertainty. When you add in

the fact that valuations have shown

very little if any downward movement,

you’re going to encounter a market

in which quality assets are priced to

perfection but everybody is walking

on eggshells because they’re not quite

certain what the next six months will

bring.

That being said, these things can be

ephemeral once everyone digests the

news and puts everything into context.

UK-based Micro Focus, for instance,

just bought the software business of

Hewlett Packard Enterprise Co. in an

$8.8 billion transaction. This is the type

of deal, involving a British company,

that can instill confidence and help

kickstart activity throughout the

market. It can help both buyers and

sellers see beyond the paralysis that

resulted from the Brexit vote.

Still, there are quite a few unknown

factors that will continue to slow

dealmaking for the foreseeable future

or at least until certain questions

are resolved. For instance, sponsors

aren’t necessarily keen to buy into

the biotech or pharmaceutical sectors

and pay a valuation that may assume

drug prices can continue to climb into

perpetuity. In the event that Hillary

Clinton is elected, drug prices will

likely receive even more scrutiny. By

the same token, sponsors may be just

as hesitant to acquire a manufacturer

and risk dealing with a potential trade

war that could see raw material costs

spike should Donald Trump win. So

the election can have a huge impact.

We also have the sense that sellers

are actually just as reticent to go to

market amid the uncertainty unless

they’re shopping assets that have a

distinct value proposition, can show

multiple years of profitable growth and

have a moat in place that protects the

company against the unexpected. But

these types of high quality assets, as

you might imagine, are not cheap.

What do you make of the high EBITDA

multiples that we are seeing across

the market? How has this high-price

environment affected your approach

to valuation?

I might actually turn that question

on its head. If you look at the S&P

500, earnings have now fallen for six

straight quarters. This has been driven

by a number of factors, not the least

of which is the strong US dollar and

the woes in the energy sector. But

even as the price-to-earning ratio

climbs and the S&P continues to test

new highs, investors are drawn to US

stocks because there’s so little growth

anywhere else.

This does have an impact on valuations

in the private market and reflects

the struggle across the investment

landscape to find growth. This is why

you’re seeing a number of larger

companies look to get leaner and

more focused, particularly when they

can generate so much shareholder

value through shedding assets that

may no longer be a strategic fit. But

The Q&A is continued on the next page.

12 PITCHBOOK 3Q 2016 US PE BREAKDOWN

CO-SPONSORED BYSPONSORED BY

as it relates to valuations, there is a

hunt for quality in this market and

buyers have to pay up to get it. Also,

depending on the sector, buyers may

overlook slowing earnings because

they recognize that it may be related

to a temporary factor, such as a strong

dollar or something else.

Generally, at least for PE deals,

valuations won’t start to fall until the

debt markets pull back. We have seen

equity commitments as a percentage

of total enterprise value slowly climb

throughout 2016, but I’m not sure

that’s reflective of lender unrest.

Rather, I think that may be more of a

symptom of smaller deals making up

a larger proportion of the total M&A

picture. It’s often the case in PE, too,

that sponsors in the small and middle

markets will over-equitize transactions

because they’re planning to pursue a

rollup and will gradually add leverage

as they add assets.

The last time we spoke, we touched

upon those sectors that could

withstand market and economic

volatility and you cited the healthcare

and tech sectors as potential

destinations for dealmakers. Are there

any other industries that may show

similar activity during the balance of

the year?

To me, the tech sector still stands out,

particularly as IPOs become harder

and harder to price and as VCs seek

to monetize investments from over

the past five years. I don’t know that

the number of deals, or the total deal

values, in the sector at the end of

2016 will eclipse last year, necessarily,

but relative to other industries, there

should continue to be a lot of activity.

Beyond the closing of the IPO window,

you also have public targets that have

failed to show the kind of growth

shareholders expect. When public tech

companies plateau, it often presents

a great opportunity for PE to come

in and drive renewed growth. TPG’s

participation in the spinout of Intel

Security is a good example. Meanwhile,

some of the larger deals from earlier

in the year are creating opportunities

downstream. The merger between Dell

and EMC, for instance, saw Francisco

Partners and Elliott Management

swoop in to buy the Dell Software

Group, comprised of Quest Software

and SonicWALL.

On the other end of the spectrum, you

will likely start to see sponsors feel

around for a bottom in some other,

more distressed sectors. Energy, for

instance, could represent an area

where sponsors hunt for value. The

Enbridge acquisition of Spectra Energy

Corp., for instance, underscores

how motivated sellers are in this

environment. And let’s not forget that

this is a sector in which many sponsors

have built up considerable domain

expertise and are well positioned to

pick through the space to find the

most appealing assets.

What are you hearing from clients

regarding their ability to find value in

this market?

To be honest, it’s really tough. Those

that are willing to pay up to win a

deal are often bringing something to

the table in the form of a specialized

skillset that can drive value post

close. The value sponsors do find

in this market isn’t necessarily in

looking at the trailing 12-month

EBITDA and applying a multiple to

that; it’s in seeing something that

other prospective buyers don’t, either

because the investors can bring

resources to bear to drive growth or

because they recognize something

nobody else can.

The Francisco Partners deal for the

Dell assets is a good example of the

type of acquisition in which the buyers

are bringing relevant expertise and

also taking on a situation—a corporate

carveout—that often requires a hands-

on owner with experience in these

types of deals.

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PE groups show resilienceFundraising

Despite the fact that PE groups

closed the same number of funds

this quarter as last, the value of those

funds dropped rather sharply, about

40% QoQ, to just $33 billion. Though it

had been on pace for a post-recession

record, capital raised in 2016 is now

poised to be about equal with the last

few years.

Through the first three quarters of the

year, traditional buyout funds have

made up 81% of the capital raised and

66% of the funds that have closed—

both the highest since at least 2006.

The median buyout fund has raised

$225 million thus far in 2016. That

figure is up from $165 million in 2015

and constitutes the highest median

buyout fund size since 2010, which is

indicative of LPs’ recent preference

toward fewer and larger funds.

Moreover, the number of traditional

buyout funds, as a percentage of

Capital raised jumps higher, even as volume declines

US PE fundraising

total final closes, has increased every

year since 2012. One trend we’ve also

noticed lately is a tendency for buyout

shops to expand their strategies

and participate in growth capital. So

while traditional growth funds have

accounted for a lesser proportion of all

funds raised, the strategy is certianly

still alive.

Mezzanine fundraising is on track for

its slowest year in recent memory with

just $2.8 billion raised through the

first three quarters, a result of investor

preference toward safer, secured

notes in times of macroeconomic

uncertainty.

As we’ve noted previously, 2016 has

seen subdued energy fundraising,

with just $11.1 billion raised across 15

vehicles. After a strong year in 2015,

which saw approximately $38 billion

raised, energy funds have been wary

to put that capital to work. A big driver

here is that oil and gas prices have

remained low for much longer than

many investors had expected. At the

time of this writing, WTI Crude Oil

is trading around $50 a barrel—well

above its $30 lows earlier in the year

and approaching the break-even prices

that many exploration companies

require. If the price of crude can

stabilize or even increase from here,

deal flow in this sector should pick up

substantially.

Through the third quarter, 90% of

funds have hit their stated target,

higher than any other year in our

dataset. This figure is somewhat

contradictory to the recent news that

many LPs are looking to slash their

alternative asset allocations, which will

be something to monitor closely in the

months ahead.

$29

$22

$18

$18

$24

$26

$24

$29

$36

$72

$27

$70

$51

$60

$28

$55

$54

$35

$41

$63

$53

$56

$33

47 39

52 45

62

71

93

67 74 74

78

57

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

2011 2012 2013 2014 2015 2016

Capital Raised ($B)

# of Funds Closed

Source: PitchBook

14 PITCHBOOK 3Q 2016 US PE BREAKDOWN

CO-SPONSORED BYSPONSORED BY

US PE funds (#) to hit target

Both buyout funds and the overall PE fund population

for 2016 are at the highest level in years

Median US PE fund size ($M)

Closing times above last year’s pace

Average US PE fund closing times (months)

By count, buyout funds accounted for a record

proportion of fundraising through 3Q 2016

US PE funds (#) by type

$165.0

$225.0

$173.0

$0

$50

$100

$150

$200

$250

$300

$350

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Buyout Funds All PE Funds

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Hit Target Missed Target

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

*

Other

Co-Investment

Mezzanine

Energy

PE Growth-Expansion

Buyout

15.12

17.91

16.69

8

11

14

17

20

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Buyout Funds All PE Funds

Buyout funds have seen relative growth every year since 2013 and now stand at 66% of vehicles raised in 2016.

90% of all PE funds hit their fundraising targets through 3Q 2016.

15 PITCHBOOK 3Q 2016 US PE BREAKDOWN

CO-SPONSORED BYSPONSORED BY

Source: PitchBook

*As of 9/30/2016

Source: PitchBook

*As of 9/30/2016

Source: PitchBook

*As of 9/30/2016

Source: PitchBook

*As of 9/30/2016

League tables3Q 2016

ABRY Partners 12

HarbourVest Partners 12

Audax Group 9

Kohlberg Kravis Roberts 9

Apollo Global Management 7

Huron Capital Partners 7

CIP Capital 6

Genstar Capital 6

Golden Gate Capital 6

Stone Point Capital 6

Apax Partners 5

Five Points Capital 5

Great Point Partners 5

Gryphon Investors 5

H.I.G. Capital 5

Hellman & Friedman 5

Marlin Equity Partners 5

New Mountain Capital 5

The Jordan Company 5

The Riverside Company 5

Thoma Bravo 5

Vista Equity Partners 5

Warburg Pincus 5

Kirkland & Ellis 56

Latham & Watkins 27

DLA Piper 18

Goodwin Procter 16

Jones Day 14

Morgan, Lewis & Bockius 12

Sidley Austin 12

Paul, Weiss, Rifkind, Wharton & Garrison

11

Paul Hastings 10

Ropes & Gray 10

Weil, Gotshal & Manges 10

Cooley 9

Debevoise & Plimpton 9

Skadden, Arps, Slate, Meagher & Flom

9

Andrews Kurth 7

Dechert 6

Dentons 6

Gibson, Dunn & Crutcher 6

Honigman Miller Schwartz & Cohn

6

Morris Manning & Martin 6

Bass, Berry & Sims 5

Cahill Gordon & Reindel 5

Locke Lord 5

McDermott Will & Emery 5

McGuireWoods 5

O’Melveny & Myers 5

Simpson Thacher & Bartlett 5

Willkie Farr & Gallagher 5

Winston & Strawn 5

Most active investors by deal count Most active law firms by deal count

Antares Capital 22

Golub Capital 10

Twin Brook Capital Partners 10

Bank of America 7

BMO Harris Bank 7

Wells Fargo 7

Barclays 6

Houlihan Lokey 15

The Goldman Sachs Group 13

Duff & Phelps 11

Barclays 10

Raymond James Financial 10

Robert W. Baird & Co. 10

Evercore Group 9

Lincoln International 9

Moelis & Company 8

Morgan Stanley 8

RBC Capital Markets 8

Harris Williams & Co. 7

Bofa Merrill Lynch 6

J.P. Morgan 6

Cascadia Capital 5

Wells Fargo Securities 5

Most active advisors by deal count

Most active lenders by deal count

Deutsche Bank 6

MidCap Financial 6

J.P. Morgan 4

Madison Capital Funding 4

NXT Capital 4

PrivateBancorp 4

RBC Capital Markets 4

The Goldman Sachs Group 4

Most active lenders by deal count, ctd.

16 PITCHBOOK 3Q 2016 US PE BREAKDOWN

CO-SPONSORED BYSPONSORED BY

Source: PitchBook

Source: PitchBook

Source: PitchBook

Source: PitchBook

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