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.

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.

Consistent and growing EBITDA along with the size premium are again driving valuation multiples in private equity transactions. Private equity transactions greater than $100 million were valued under 8.0x EBITDA for three consecutive quarters, finally rebounding in Q2-2021 to the multiple range that was transacted prior to the onset of the Covid pandemic. Valuation multiples on a whole have re-aligned to where they are expected to be with size premiums falling back in line with historical premiums.

In private equity transactions under $250 million, EBITDA enterprise valuation multiples increased from 6.7x to 7.0x EBITDA, an increase of 4.5% from last quarter. As the current EBITDA multiples are compared to historics, multiples have rebounded in the $25-$100 million deal range to near two-year averages, as deals from $100-$250 million are lagging pre-pandemic valuations. When comparing EBITDA multiples to the entire dataset, multiples of transactions in the $25-$100 million range are well above the long-term multiples.

In private equity transactions under $250 million, EBITDA enterprise valuation multiples fell to 6.7x from 7.4x EBITDA (-9.5%) last quarter. Total Debt to EBITDA multiples moved up to 3.7x (12%) compared to the previous quarter at 3.3x EBITDA, why and how this happened is worth discussing. Even though debt multiples increased quarter over quarter, senior debt multiples decreased slightly in the quarter by 0.1x while subordinated and mezzanine debt doubled from 0.5x to 1.0x EBITDA (GF Data).