KUHN CAPITAL Monday, March 19, 2018
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A Booming M&A Sector

July 11

Our friends at Whitestone Communications report that in Q2 2005 M&A activity for the publishing, training and information industries hit a new high-water mark, $10.8B, edging out the previous record-holder, Q4 2000, which churned out $10.5B.

Leading the deal parade were:

NASDAQ’s purchase of trading network Instinet for $1.9B;
Bain Capital’s buy of school materials supplier School Specialty for $1.5B;
T&F Informa's $1.4B purchase of conference/training company IIR Holdings;
Hellman & Friedman’s acquisition of DoubleClick for $1.1B.

So these four deals alone accounted for over half the quarter’s total.

The prices paid were also high, at least by historical standards. Whereas a few years back EBITDA multiples for information companies with sales over $100M and reliable growth had been perhaps 10x, these four mega-deals went for an average multiple of 16x.

Another difference from times past is the presence of increasingly ubiquitous leveraged buy-out players like Bain and Hellman & Friedman. These firms and their ilk now seem to participate in any large deal in any industry, shouldering aside the traditional operating company bidders.

As their name implies, LBO groups typically load the target company with as much debt as their banks will tolerate, and these days they tolerate a lot. We speculate that operating companies hesitate to leverage their balance sheets as highly as LBO firms do because their executives like getting regular paychecks.

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