Deal valuations reach new highs in H1

The average multiple was inflated by buyouts of $1bn and above, and by consumer and tech transactions.

Valuations in US private equity transactions as a multiple of EBITDA have reached new highs in the first six months of 2017 at 13.7x, as debt markets remain fluid, according to a new report. Private Debt Investor's sister publication Private Equity International first reported this story. 

“The rich prices paid for deals in the first half, fueled by a very liquid debt market, speak to the attractive assets that remain available and that competition for these companies remains high,” valuation firm Murray Devine wrote in a report released on Wednesday.

The average debt multiple for the first half of 2017 was 7.2x EBITDA, “a full turn and a half above 2016's average debt multiple and on pace to top any other year over the previous 10”.

At the same time, deal volume is slowing down, with private equity firms closing on 1,808 deals worth $327.9 billion in the first half of 2017, representing a decrease of more than 15 percent in the number of transactions.

“Deal volume and valuation trend lines have begun to diverge, a tendency that's typically more common near the end of a market cycle,” the valuation advisor wrote.

Higher valuations would imply that it will become increasingly difficult for firms to expand multiples before a sale and that it could pressure returns for investors going forward.

US private equity deal multiples are especially high on the larger end of the market, with deal valuations for buyouts of $1 billion and above at 13.9x EBITDA in the first half of the year. These largest transactions typically consist of secondary buyouts or carve-outs from larger corporations.

At the lower end of the market, transactions saw lower deal valuations at 9.6X EBITDA on average, according to the report.

“Another factor that likely helped inflate PE valuations in the first half is the popularity of the IT and consumer sectors among PE buyers,” the report stated.

The average deal multiple for consumer-related transactions was 13.9x in the first half of the year, while for IT deals the average multiple stood at 13.8x.