Market Color: Middle Market Valuations 2016

Market Color: Middle Market Valuations 2016

Our friends at GF Data® produce unusually good information about how private companies are valued in M&A transactions. For 2016, a few headlines from their analysis and a round-table meeting of M&A lawyers and investment bankers this week in Atlanta are:

  • Record high valuations for companies $10-250 million in enterprise value. 6.9x EBITDA.

  • High valuations were achieved by very well performing companies. In fact, you could speculate that only the best managed companies with the cleanest financial statements and risk profiles are getting transactions done. With high prices goes investor low risk tolerance. (1)

  • Even for companies that can get deals done, the size premium is significant. The average EBITDA multiple in 2016 for companies valued at $100-250 million was 9.0x. For companies valued at less than $50 million, it was less than 6.5x. Another indicator that high prices go with low risk tolerance. (2)

Please call us for market color. GF Data's year-end press release is linked here and attached below.

(1) To be specific, GF Data defines better financial performers as businesses with trailing 12 months EBITDA margins and revenue growth rates both above 10%, or one above 12% and the other metric at least 8%.

(2) If you want to dig into this topic, I recommend the GF Data blog post, "A market participant perspective on the size premium".

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