News

In Q3 2022, equity contributions in M&A transactions amounted 54.3% of the total contribution in deals, but this dropped to 41.2% in Q4 2022 while debt increased from 45.7% to 58.8%.  Private equity investors are no longer paying up with equity contributions on transactions. This shift indicates that valuations have come down and are normalizing towards the mean after a period of elevated multiples.

With several interest rate hikes in the books and more expected, the immediate impact of interest rate increases has been felt in the debt markets with the cost of senior debt increasing 190 bps in the past quarter. Senior debt pricing increased from an average of 4.7% in Q2 to 6.6% in Q3 at the same time that the overall TEV EBITDA multiples increased from 7.4x to a record 8.1x TTM Adjusted EBITDA as reported by GF Data. 

Valuation multiples have held relatively steady through the second quarter of 2022 in the face of continued market volatility, while debt multiples have taken a slight dip in the $25-$50 million and $100-$250 million categories. Valuation multiples remain at or above historical averages in spite of most economic factors pointing to downward pressure on valuations.

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.