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Private Equity Trends

by Ken Schaefer

Pitchbook™ has published a survey exploring private equity (PE) buyout multiples and trends.[1]  I will summarize this and dive deeper into our transaction space ($2M-$10M deal size), and what it means for business owners contemplating a future exit.

More and more PE firms are searching for smaller transactions. The reason for this is simply competition. The PE marketplace is awash in funds as more retirement funds, hedge funds, and endowments search for higher returns. While accredited investors are still very active in private equity, the combination of institutions increasing their investment base, and the fact that the number of public companies traded on the two major exchanges has shrunk by approximately 50% in the last twenty years contribute to this uptick in activity and broader searches.

“Headline” mergers – those transactions that attract attention in the national media and financial news trade at very high multiples- very close, or in many cases, the same multiples as publicly traded markets. Pitchbook™ reports that transactions under $25M average change hands at six times EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), compared to an average of eight times EBITDA for transactions between $25M and $100M), and for each deal size range the multiple increases.

In the transaction space we occupy ($2M to $10M), typical EBITDA multiples range from 3 times to 4.5 times[2]. These are averages, and we have completed transactions as high as eight times EBITDA. This illustrates the strategy of private equity firms at all levels: execute a transaction at the current market EBITDA multiple, grow the business over a three to seven-year period with additional capital and expertise, and exit the transaction at a higher multiple range, often to a larger investment group, a strategic acquirer, or less often via an IPO.

Typically about 50% of our transactions are with private equity firms. We expect this to increase in the future as more and more PE firms explore our transaction space. These firms in most cases wish to have the selling owner continue with the company for a few years to provide stability and continuity. This is why we advise owners of companies to think of a sale earlier than they have to in order to provide time for this kind of transition.


[1] Pitchbook™ -Exploring Buyout Multiples. June 26, 2017
[2] Pratt’s Stats accessed June 27, 2017

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