Valuation multiples in the first quarter of 2022 have remained relatively consistent with the last three quarters of 2021 and continue to be above the averages of the entire dataset since 2003 as well as the average of the past couple years. Debt multiples have seen a tick up in Q1, and as discussed in our March 2022 Links’ List, valuation multiples and debt multiples are positively correlated.
Recent valuation multiples in all transaction sizes remain at or above the average of the entire dataset since 2003 and above average valuation multiples since the beginning of 2019. As expected, the market experienced some multiple compression over the last quarter pulling down EBITDA multiples and total enterprise values.
Using EBITDA multiples is just one of many methodologies valuation experts consider when they value positive cash flow businesses. Whether EBITDA multiples are based off the trailing 12 months (TTM) EBITDA or the forecasted EBITDA, this approach has been widely used to value both private and public companies
In Q3, private equity quarterly multiples were the highest on record collected by GF Data in their 16 year history. A combination of factors are contributing to this increase. According to GF Data, in Q3 2021, more platform transactions were completed vs. add-on transactions. Platform transactions are usually larger than add-on transactions and result in a higher multiple. Further, deals have been structured where buyers are paying on the trailing twelve-month EBITDA that has not completely recovered from the impact of COVID and normalizations to EBITDA fail to capture all the softness in earnings.