The most recent GF Data shows us what we expected: multiples contracted compared to last quarter in all deal sizes except deals greater than $100 million. For all deals under $50 million, the TEV/EBITDA is still slightly above the historical multiple average by 0.2x turns. Deals in the $50 to $100 million market are trending above average by 0.5x turns and deals over $100 million are well above their historical average at 2.2x turns higher.
For the first half of 2019, private equity multiples have remained strong and continued to accelerate on most deal sizes up $250 million in tangible entity value. However, multiples in the $50-$100 million market have reverted back to the mean and we are expecting to see this reversion for other deal sizes given the impacts from the US-China trade war and earnings softness.
Many articles have been written on why you should engage an investment banker or Many articles have been written on why you should engage an investment banker or M&A advisor to sell your business. If you are going to hire someone to sell your M&A advisor to sell your business. If you are going to hire someone to sell your business, make sure you fully understand how they are going to manage the process business, make sure you fully understand how they are going to manage the process before you engage them. This means knowing who is doing what for you.
The highest multiple that is recognized from a divestiture standpoint using these historical metrics at the end of Q1 2019 suggest that a private equity group is likely going to attain a higher selling multiple (8.1x) when compared to buyouts (7.2x), platform investments (7.4x) and add-ons (6.7x) even when taking into consideration companies with above-average financial characteristics (7.8x) and management staying on post transaction (7.3x) purchased by other private equity groups. Detailed analysis should be done, looking at respective deal sizes and industry to understand how it impacts each company.
In the fall of 2017, the Business Development Bank of Canada completed a study on business transitions.
“41% of all entrepreneurs are likely to leave their businesses within the next five years and 52% of them expect to sell or transfer their business outside the family.”
“Entrepreneurs looking to exit are slowing down too soon: 71% are reluctant to take risks to improve their business performance and 52% have little interest in expanding their business, which may cause them to sell below market value.”