This month’s issue of the monthly executive brief providing M&A market insight for C-level management and their professional advisors.
In like a lamb and out like a lion ... and so go mergers and acquisitions in 2012. Q3 transaction data has been published by G.F. Data, LLC and shows buyers paid an average of 6.9 times trailing twelve months earnings, the highest average valuation multiple in a given quarter in over ten years (see Figure 1). Even deals in the lower middle market, $10 to $25 million companies, saw a sizable jump, from 5.4 to 6.3 times earnings. Larger transactions saw multiples flat, as only a limited number of large companies were brought to market.
The upward trend in middle market valuations may have much to do with supply and demand. Speculation is that many middle market business owners, uncertain about the larger economic picture and the potential challenges of reinvesting sale proceeds, have deferred any exit decision. With limited supply driving prices higher and investors competing for fewer and fewer deals, multiples jumped.
Other trends seen in Q3 of 2012 include average equity share rising from the high forties to low fifties at the $50 million deal size threshold as buyers seem inclined to stretch more on valuation for the $8–10 million EBITDA business (see Figure 2). Manufacturing, business services, distribution and healthcare sectors comprise the bulk of deals completed in the quarter. And again, the larger the deal, the greater the premium paid for best in class performers.
For more information contact:
Douglas Nix, CA | Vice Chairman CFA
905 845 4340 ext. 211