Have Business Valuation Multiples Plateaued?

/ Saybrook Capital Advisors, LLC/

According to the November GF Data® report, middle-market1 deal valuations continued to show signs of plateauing in the third quarter of 2018. GF Data®, which tracked 63 completed transactions in the $10 million to $250 million total Enterprise Value2 (TEV) range, said “there is still some forward momentum in some niche sectors, but more broadly, we see froth coming out of the market.” In other words, valuations may be at the beginning of a downward trend.

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Business Valuation Multiples Move Higher

/ Saybrook Capital Advisors, LLC/

According to GF Data, ® valuations of middle-market companies in Q3 eclipsed previous highs with an average Total Enterprise Value/Adjusted EBITDA multiple of 7.5x on deals with an Enterprise Value 1 of $10 million to $250 million. Year-to-date average valuation multiples are 7.1x (see Chart A). While the number of completed middle-market deals year-to-date is down from the comparable 2016 period, demand for companies with above average financial performance remains very strong. This demand in conjunction with the availability and use of higher leverage by buyers, is largely responsible for the record high valuation multiples.

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Business Valuation Multiples at Record Highs

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According to GF Data, ® valuations of middle-market companies in Q3 eclipsed previous highs with an average Total Enterprise Value/Adjusted EBITDA multiple of 7.5x on deals with an Enterprise Value 1 of $10 million to $250 million. Year-to-date average valuation multiples are 7.1x (see Chart A). While the number of completed middle-market deals year-to-date is down from the comparable 2016 period, demand for companies with above average financial performance remains very strong. This demand in conjunction with the availability and use of higher leverage by buyers, is largely responsible for the record high valuation multiples.

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