M&A Update - Pricing Multiples Remain Strong, Despite Lower Total Transaction Value

by Brian Greenberg, CEO, Greenberg Advisors, LLC 

Transaction value was down in 2Q 2012, with $1.11 billion in Accounts Receivable Management (ARM) and Revenue Cycle Management (RCM) deal value transacted over the LTM (last twelve months) period ending 2Q 2012. This is off 25% from the LTM period ending 2Q 2011, but in line with the numbers from the LTM period ending 2Q 2010, as shown in Figure 1 (below). The number of transactions, however, held steady at 51 deals reflecting the fact that with a few exceptions, smaller firms dominated the activity.
 

We usually analyze pricing multiples on a quarterly basis, however as with other statistics, they can fluctuate significantly from quarter to quarter, therefore we occasionally assess them on an LTM basis. Figure 2 (see page 2) shows the LTM median Price/EBITDA multiple at 6.0x in transactions as of 2Q 2012. A steady upward trend has developed over the past 2½ years, which may surprise observers who don’t think market demand is strong enough to support a viable exit strategy.

Figure 1

The largest ARM deal in 2Q 2012 was Encore Capital Group’s (Nasdaq: ECPG) acquisition of tax lien purchaser Propel Financial Services, which is also an example of a successful PE-exit by previous owner McCombs Partners.  Interestingly, there have been 4 PE exits of ARM firms thus far in 1H 2012 as shown in Figure 3, nearly equaling the pace of 2011 in which there were 10 PE exits throughout the year.  Institutional investors are often astute judges of market cycles, in conjunction with a subject-company’s lifecycle, and thus timing to enter and/or exit an investment.

Looking at the buy-side, PE firms and PE-backed strategics were responsible for 9 of the acquisitions in 1H 2012.  This is likely driven by the significant amounts of “dry powder” built up by PE firms in the past several years.  Of the 4 RCM deals which occurred in 1H 2012, 1 was completed by a PE-backed strategic.  Based on interest we’ve seen from many buyers, we fully expect that transactions involving firms that provide RCM services will continue to be an active segment for M&A activity. 

Contact us to discuss any of the M&A trends noted herein, or to let us know of your strategic objectives.

 Figure 2

 

 

Figure 3

Note: This update is for informational use only.  Information contained in this update is based on data obtained from sources believed to be reliable, and in some instances contains estimates.  Nothing in this publication is intended as investment advice.  Use of any of the included proprietary information for any purpose without the written permission of Greenberg Advisors is prohibited.