According to data published by BV Resources, business valuations as expressed as a multiple of ebitda were at their highest in since 2007. While median valuations have been increasing somewhat since a low in 2010, 2017 saw a larger than usual increase in ebitda multiples. This cooresponds to BMI’s experience where we see more buyers acting more aggressively than anytime since the recession. David Clark, Managing Director at BMI believes the combination of continued low interest rates, strong financial results and balance sheets and plentiful private equity funds are driving the market upward. He expects this to continue into 2018 with additional push from the recent tax cuts which not only increasing target company values but also give strategic buyers more cash with which to make acquisitions.
Interestingly, BVR’s report shows days required to sell increased about 18% above 2015-2016 levels at a median time period of 225 days. This was the case for each quarter of 2017 with the median days for each quarter exceeding every quarter since the beginning of 2013. The survey does not address the reasons for this increase however BMI’s market view is that lenders are becoming more cautious at the same time they are doing a lot of deals. The result is more time to get loans approved.
Median multiples by industry ranged from a low of 3x for retail, 4x for construction up to 8x for mining. As always caution must be used with average data as one or two outliers can skew the results. We think this is the case for the mining industry.
Pratts Stats Private Deal Update is a quarterly publication of Business Valuation Resources. Pratts database includes over 21,000 private transactions and over 6,000 public company transactions.
For more information contact Tom Kerchner at BMI.