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Deal Pricing

According to Pratt's Stats, a leading private M&A transaction database, the overall median selling price to EBITDA for all major sectors was 2.96. This figure was up slightly from the 2012 mark of 2.88, but far from the 10 year high of 6.16 reached in 2006. The multiple mean under 3x tells us that the database includes many small transactions of sellers under $5 million in revenue.

What else does the above information tell us? Only that a recovery in transactions completed and better pricing is not the norm. On the flip side, public company (strategic buyers) acquisitions of privates revealed a 9.55x multiple, versus individuals buying companies at 2.78x. Size does matter, with larger revenue bases commanding significantly higher multiples. We believe that multiples start to climb at about $15 million in revenues. Exceptions are the inordinately profitable firms under this base level.

Where has all the money (dry powder) gone? How are the PEGs surviving? In short, the availability of funds for equity/asset purchases is probably at an all-time high. Private equity firms continue to raise larger funds; yet, with a dearth of really profitable sellers, many PEGs have elongated the horizon to turn the capital into deals and exits. Some PEGs have suggested to the fund investors that the exit horizon is now 7-10 years, versus the old norm of 5-7 years.

We are keenly aware of market sector trends and pricing. And we continue to foster and forge close relationships with both strategic acquirers and private equity firms. Our ultimate job is to explain our client's uniqueness, while making them mindful of what the market(s) is telling us.

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