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April 25, 2017

Written by Chunshek Chan, Dealogic Research

M&A transaction multiples reach record high

As global equity-market indices test new records from investor enthusiasm, so does M&A valuation. The median EV/EBITDA multiple of global M&A deals* for 2017 YTD has reached 13.9x — a record high both in terms of YTD and full-year median multiples. Acquirors find themselves needing to pay for higher premiums for potential targets, both private and public. As target companies become more expensive, financial sponsors, which tend to prefer buying companies at lower valuations, are either forced to accept higher prices or driven out of the scene.

 


Due to high valuations, only 397 sponsor entries were announced in 2017 so far, the lowest YTD activity since 2003 — even though announced YTD volume ($108.7bn) is the highest since 2008.

 


A 3-year run in high valuations

Despite the correlation between equity markets and M&A valuation, EV/EBITDA multiples in M&A deals typically demonstrate much less volatility than equity markets. Breakouts from a tight range happen infrequently, and can indicate a general shift in market sentiments. From June 2006 to May 2008, the trailing twelve-month (TTM) median EV/EBITDA remained in a very narrow range between 12.7x and 13.0x in the run-up to the global financial crisis. Even though the crisis once brought the median down to just 8.2x in the 12 months ending August 2009, the TTM median multiple returned to a tight range between 10.1x and 11.1x for more than 3 years from May 2010 to June 2013, before breaking out once again for another 3-year run within the 12.9x to 13.8x range from March 2014 until present. How long the current run will last remains to be seen.

 

*Excludes targets in finance, insurance, and real estate, as well as targets with negative enterprise value or EBITDA

Data source: Dealogic, as of April 21, 2017