Mid-market M&A pricing in Europe increases as private equity funds pay record high levels

Lucy White
Mid market deal activity falls due to Brexit, although pricing rises
Despite increased pricing levels, mid market deal activity in the UK has fallen in the first quarter (Source: Getty)

The price which buyers will pay for mid-market companies in Europe has increased by 1.2 per cent in the first quarter of 2017, according to the Argos Mid-Market Index from Epsilon Research and French investment firm Argos Soditic.

Buyers paid an average of 8.6 times earnings before interest, tax, depreciation and amortisation (Ebitda), while the multiple paid by private equity funds hit an all-time high of 9.2 times Ebitda since the index began in 2004.

Despite the full pricing statistics, the figures show a drop in UK mid-market merger and acquisition (M&A) activity to 2015 levels, and a continuing withdrawal of foreign buyers situated outside the Eurozone.

Foreign buyers constituted just 51 per cent of trade buyers in the last six months, compared to 57 per cent in 2015.

Read more: UK expected to retain strong M&A relationship with the rest of Europe despite Brexit uncertainty

Brexit may have been to blame for the UK's decline, as mid-market deal volume fell in the first quarter by 9.5 per cent and deal value dropped by 15 per cent compared to the same period last year.

Yet this came after an increase of 10 per cent in volume at the end of 2016, and was in line with the decline elsewhere in the Eurozone.

The mid-market slowdown also appears to be bucking a wider trend, as Thomson Reuters published data last week showing M&A activity as a whole in the European Union had reached a ten-year high.

The Argos Index defines a mid-market company as having an equity value of between €15m and €500m.

Corporate buyers stabilised their pricing for mid-market businesses at the high level of 8.5 times Ebitda – although there was a disparity between the upper end of the mid-market, where multiples increased to 8.9 times in line with the stock market, and the lower end where multiples dropped to 8.4 times.

The report puts the record prices paid by private equity funds down to the high levels of investor capital in the market currently, and the strong competition for buyout opportunities.

Leveraging by private equity funds may also have contributed, increasing in 2016 to 4.8 times from four times in 2009 according to this year's Bain Global Private Equity Report.

Read more: A diet of debt: Should spiralling levels of leverage worry investors?

Corporate buyers on the other hand “seem to be more sensitive to the Eurozone geopolitical situation”, the Argos Index said.

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