LevFin Insight: Ultimate Software, Ellie Mae offer large equity checks as high leverage, B3 deals abound in 1Q
As seen last week on LFI: Arrangers rolled out another set of highly levered transactions in the first quarter as sponsors continued to pay high multiples for assets, spurring yet another wave of B3 rated credits and deals levered north of 6x.
Looking at LBO loans launched in the first quarter with at least $1 billion of debt, sponsors kicked in meaningful equity checks, save for a couple of exceptions, as detailed by the table below. Two B3 rated software transactions currently in market—the take-private LBOs of Ellie Mae and Ultimate Software—stand out for their outsized equity contributions, which are a function of the high purchase price multiples. The sponsors are paying 18.6x and 21.9x for the assets, respectively, based on marketed adjusted EBITDA of $191 million and $496 million, sources said.
Ellie Mae’s LBO levers the cloud-based platform for mortgage lenders just north of 7x, or 6.8x on a net basis, while Ultimate Software’s leverage is a bit lower, at nearly 6.5x gross or 6x on a net basis. High multiples and high leverage, to be fair, are common in the sector. Please visit our website for a table of transactions.
Overall, the average equity check of the eight LBO deals detailed above is 44%, which is roughly in line with 2018’s average of 43%, but up from 38% in 2017 and a mere 23.5% in 2007, per data from LFI sister publication Covenant Review.
Geared up
Of the LBO loans launching in the first quarter, 65% were levered north of 6x, the highest percentage since the beginning of 2017.
Given the high leverage on 2019’s crop of LBO loans, B3 volume remained elevated in the first quarter.
Looking at total volume, the first quarter generated the second-highest quarterly volume of B3 deals as a percentage of overall volume since LFI began tracking these data in the fourth quarter of 2016, excluding repricing activity.
For our full report, and our supporting data, please see our website, www.levfininsights.com
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