Q3 2024- Market Update: EBITDA Multiples Hold Steady While Profit Margins Tighten
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Q3 2024 Market Update: EBITDA Multiples Hold Steady While Profit Margins Tighten
(Did you miss our Q2 2024 Market Update? Check it out here)
As we close out the third quarter of 2024, private market activity continues to show resilience. According to the latest DealStats Value Index, valuation multiples have remained relatively stable, although some shifts in profit margins are worth noting. Below, the report exert dives into key trends impacting the private company market.
EBITDA Multiples Return to Typical Levels in 2024
In Q3 2024, EBITDA multiples for private companies across various sectors have generally maintained the upward trajectory seen in past years. While the multiple reached 4.8x in Q2 2024, it remained stable in Q3. This marks a return to typical levels last seen in 2018, when multiples hovered around 5.0x.
Historically, multiples began a downward trend in mid-2018 but have steadily rebounded since Q2 2022. This stabilization signals a consistent demand for private company acquisitions, particularly in sectors like information technology and utilities, which have seen some of the highest all-time EBITDA multiples.
Keep in mind this is an aggregate average that will be skewed by the aforementioned outsize multiples observed in the information and utility multiples. See more detailed breakdown by industry sector below.
Profit Margins Tighten Across Sectors
While multiples have stabilized, profit margins across many sectors have shown some decrease. The median EBITDA margin held firm at 15% in Q2 2024, though this represents a slight dip from the peak of 18% in early 2023. Despite this, EBITDA margins remain well above historical lows, highlighting ongoing operational efficiency among private companies.
Gross and operating profit margins, on the other hand, have shown more volatility. Sectors such as manufacturing, retail, and professional services have experienced a tightening of margins, reflecting increasing cost pressures and operational challenges. We are seeing margin compression heading into the balance of 2024, the consumer is under pressure due to higher debt servicing costs and we are seeing retail businesses offering price discounts, incentives and offering more to maintain revenues.
Information and Utilities Sectors Lead
The information sector continues to outpace other industries with an impressive 11.0x median EBITDA multiple, while utilities follow closely with 8.2x. On the other end of the spectrum, industries such as accommodation, food services, and other services maintain lower multiples, indicating less robust buyer demand in these spaces which is a continuation of the experience in those sectors since the onset of the COVID-19 pandemic.
Ten-Year Trend For Private-Seller Sector Multiples
Looking Ahead
With 2024 almost in the rearview mirror, private market participants will be closely monitoring broader economic conditions, including inflation and interest rate trends, which could influence valuation multiples and profit margins into 2025.
If you're considering a private company acquisition or sale, understanding current market dynamics is critical to optimizing your strategy. For tailored insights into your industry or for help with planning to sell your business or retire, give us a call at (250) 929-2929 or click here to book a free consultation call with us!
Data source: DealStats Value Index (Q3 2024) - 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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