Exit and Growth Strategies for Middle Market Businesses

Is the Hot Seller’s Market Cooling Off?

By John Hammett | Feb 19, 2015

Seller's MarketFor the last 18 months, I have been telling private company owners that we are in a hot “seller’s market” that is pushing up values for companies in the $5 million to $25 million range.  The lack of active company sellers juxtaposed with the high demand from private equity investors working hard to invest $400 billion in new acquisitions drove up valuations last year by about 1.0 times EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization.

Now it looks like that price premium is starting to go away.

GF Data, is a data analysis firm that reports on deal prices paid by private equity investors.  GF data reported today that Price/EBITDA multiples for transactions valued between $10-$250mm dropped ½ of a “turn” from 6.6X EBITDA to a 6.1x average multiple.  The GF Data report explained further that:

“Our data suggest that for the first time since 2007 more business owners are beginning to feel that the current mix of economic, industry and capital market conditions will not last forever, and that these conditions themselves are becoming an impetus to sell.”

This may be the beginning of a return to historically lower values for private company sellers.  My sense is that owners who planned to sell their companies in 2015-2016 need to move now if they are going to pick up part of the 20% premium from the seller’s market conditions during 2014.

Posted by John Hammett.

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