Deal Valuations Q1-23
Finding reliable data on deal valuations is not as simple as it looks. To fully understand the overall value of a deal, it is necessary to obtain a range of financial measures surrounding the transaction. For example…
- Was the transaction an equity or asset deal?
- How much equity was acquired / rolled over?
- What form did the initial consideration take (cash, debt, shares…)?
- Is there any deferred element of consideration, in what form and with any performance triggers?
- What seller-debt, if any, was carried forward by the buyer?
- What assets were acquired outside of the normal operations of the business? For example, surplus cash, buildings owned by the company?
- Would any of the surplus assets (e.g., buildings / land) carry a higher market value than shown in the statutory accounts?
- What was (or is) the underlying EBITDA (on the basis of new ownership)?
- Were there any tax benefits carried forward on a de-group / re-grouping basis?
- And so on…
When a company is sold, the acquiring company may or may not fully disclose the consideration mechanism used and the deal structure used. Very often when a private company, (e.g., ‘Limited Company’) is acquired by another private company, the disclosure is quite brief (usually by way of annual statutory accounts). When a public company acquires, it often takes some time for the full consideration mechanism to be written into the annual report – and usually in small print!
For this reason, deal values publicised should be treated with caution!
By way of example, a company that sold for £11M caught a client’s eye recently. With £1M of EBITDA showing at Companies House, our client was surprised that the seller obtained an ’11 x EBITDA’ multiple in what appeared to be a very conventional business.
It didn’t take long to establish that the balance sheet carried £4M of cash together with freehold valued at £1.5M – probably much lower than its real market value. Knowing that both were included in the sale, it was safe to say that the real EBITDA multiple – i.e., that which represents the Enterprise Value of the business itself (on a cash & debt free basis), was a lot lower than it first looked.
One way of figuring out the real multiples is to ask the M&A community (i.e., the ‘deal-makers’) what they are actually achieving in terms of deal valuations.
As it so happens, we are able to draw on such data. As a member of both PitchBook and Dealsuite, we are able to obtain data both from the deal-makers, as well as the post-deal values collected publicly. As well as having a growing library of our own deal multiples.
Dealsuite is the largest M&A network in Europe and is aimed solely at M&A professionals. As a member, we receive a quarterly update on deal values and industry data from across UK and Europe.
The latest survey, conducted with 1,318 M&A advisory firms in the M&A mid-market across UK&I, DACH, France and the Netherlands is available as a download here.
Looking at deals between €1M – €200M, this latest report provides a breakdown of EBITDA multiples by country, as well as indicating sector multiples across a wide range of industry verticals.
A useful report for any company owner wanting a snapshot of current valuations together with market outlook for various countries.
Many thanks to the team at Dealsuite.
If you are considering an exit and are interested to understand what value could be achieved, please contact us, in complete confidence, to discuss how we can help.
Tags: advisory, company sale, deal value, Dealsuite, earn-out, EBITDA, good time to sell, M&A, multiples, Outlook 2023, PitchBook
