Q1 2020 Market Update - EBITDA Multiples Rise in 1st Quarter of 2020
The market story of privately owned companies is again mixed in 2019, while earnings before interest depreciation and amortization (EBITDA) margins have decreased, the multiples paid for those earnings have increased. Do note, these are averages that incorporate all industries and all market sectors.
EBITDA multiples rise
EBITDA multiples across all industries rebounded after declining in the prior two quarters, reporting at 4.8x in the first quarter of 2020. In an unstable economic environment, the first-quarter multiple, at 4.8x, is the highest multiple to start a year over a six-year period, as illustrated in the graph. The first-quarter rate also bucks the trend of declines in the first quarter over the past five years.
Margins are declining
EBITDA, as a percentage of net sales, fell to 9% in the first quarter of 2020, its lowest level since the fourth quarter of 2018. Meaning company cash flows are under sustained pressure. Since 2014, EBITDA margins have ranged from 9% to 15%. The selling price-to-EBITDA multiple rose in the first quarter of 2020. Prior to 2019, the EBITDA multiple reported higher in the second half of each year, but the multiples in 2019 broke this trend and declined instead.
Selling Price to EBITDA by sector
EBITDA multiples are highest for the information sector (11.3x) and the mining, quarrying, and oil and gas extraction sector (8.5x). Meanwhile, the lowest EBITDA multiples are in the accommodation and food services (2.6x) and the other services sectors (3.0x). The median across all industry sectors is 4.4x.
Median Selling Price to EBITDA by sector (Private Companies)
Data source: DealStats Value Index (Q1 2020) - The DealStats Value Index summarizes valuation multiples and profit margins for private companies that were sold over the past several quarters. Business Valuation Resources (BVR) captures this private company transaction data in its DealStats platform.
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