Pitchbook: US debt multiples reach decade high

US deals averaged a 5.7x debt-to-EBITDA multiple in the two years leading up to the financial crisis. 

The median debt-to-EBITDA multiple for US private equity deals reached 6.8x by the end of the first quarter, according to data released by Pitchbook on Wednesday. The Q1 median is the highest seen in the last decade and considerably greater than the 6.5x median the industry notched last year.

US deals averaged a 5.7x debt-to-EBITDA multiple during the height of private equity’s so-called Golden Era in 2007-2008, according to the report.

Increased competition, an ever-growing stockpile of unused investment capital and easy access to credit markets contributed to the spike in median EBITDA multiples up over the last two years. After hovering around 8.5x in the three-year aftermath of the financial crisis,  combined debt/equity multiples on US deals jumped to 10x in 2013 and have since grown to 11.6x through the end of the first quarter.

 Median EBITDA Mulitples for Buyouts 

  2010  2011  2012  2013  Q1 2014 
Debt  4.7x 4.7x 5.2x 6.5x 6.8x
Equity  3.6x 3.8x 3.2x 3.5x 4.8x
Total  8.3x 8.5x 8.4x 10x 11.6x

Source: Pitchbook

Even as debt-to-EBITDA multiples have skyrocketed, however, firms have begun to pull back on the amount of leverage put to work in individual deals. Median debt percentages for buyouts fell to 58.2 percent in the first quarter, well off the 64.7 percent median seen last year.

 Median Debt Percentages for Buyouts 

  2010  2011  2012  2013  Q1 2014 
Debt Percentage  56.1% 55.4% 61.6% 64.7% 58.2%

Source: Pitchbook

 “One possible explanation for this is the push toward smaller transaction sizes, which don’t require as much leverage to finance. PE firms may also be more prudent with their use of leverage these days, which would explain the large jump in the equity-to-EBITDA multiple between 2013 (3.5x) and 1Q 2014 (4.8x),” according to the report.