Q4 2022 Market Update - EBITDA MULTIPLES Bounce & Reverse Course.
Growing concerns over inflationary pressures, rising interest rates, and a growing risk of recession resulted in EBITDA multiples falling to 2.9x in the third quarter of 2022, ending the string of increases seen in 2021. However, this proved to be a short-lived through as EBITDA multiples get a healthy bounce back in the third quarter of 2022 back to levels we've seen back in the fourth quarter of 2021.
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EBITDA Multiples benefit from a healthy bounce
A weakened economic outlook and increasing interest rates a near certain probability of some kind of recession have not dampened the private market transaction multiples in the third quarter. The market has moved back towards the long-term average albeit still a whole 1.1x short of the 4.8x all-time average.
EBITDA Margins remain elevated
EBITDA, as a percentage of revenue, hit 18% in the first quarter of 2021 (the highest recorded figure over the
periods analyzed). The previous range was between 11% and 12%, from the first quarter of 2019 through
the fourth quarter of 2021. The lowest EBITDA margin point since the fourth quarter of 2016 was 11% in the
second quarter of 2019.
In an inflationary environment rising prices and labour shortages, it appears companies have improved EBITDA margins, essentially becoming more profitable, this is accomplished by cutting costs or raising prices faster than the cost of key inputs as well as lower competitive pressure.
Selling Price to EBITDA by Sector
All-time EBITDA multiples remain the highest for the information sector (18.8x) and finance and insurance sector (11.2x), knocking Mining to third spot at (8.3x).
The information sector is persistently holding a notable increase over its all-time period multiple of 11.1x, the last 12-month EBITDA multiple come in at 18.8x, a 4.9x increse from our last quarterly update a significant bounce.
Meanwhile, the lowest all-time EBITDA multiples are in the accommodation and food services (2.2x) and the retail trade sectors (3.1x).
The median across all industry sectors for all time periods is 4.8x
10 yr Median Selling Price to EBITDA by Sector (Private Companies)
Median multiples paid for private targets, are organized by industry sector. Multiples across the 15 sectors appear to rise and fall based on various factors. Median EBITDA multiples increased in three sectors from 2020 to 2022.
Data source: DealStats Value Index (Q4 2022) - 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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