Mid-Market M&A Pricing In Europe Increasing


May 31, 2017

According to the Argos Mid-Market Index, the price for mid-market companies in Europe is on the increase. Mid-market M&A pricing rose by 1.2% in the first quarter of 2017. Private equity funds were paying increasingly high prices in these situations, states the index collected by Epsilon Research and Argos Soditic.


What does the index show?


According to the Argos Mid-Market Index, the average price paid stood at 8.6 times earnings before interest, tax, depreciation and amortisation (EBITDA). For private equity funds, the situation was worse. They hit an all-time high with the price multiple standing at 9.2 times EBITDA. This is the highest multiple for the funds since the two companies began keeping the index in 2004.


The report suggests, the reason for high pricing paid by private equity funds is down to the high levels of investor capital available. The sector has plenty of investors willing to spend and competition for the best buyout opportunities is heating up. Bain Capital’s recent Global Private Equity Report also suggests that leveraging by private equity funds might have played its part. Leveraging by the funds increased in 2016 to 4.8 times, while in 2009 it stood at four times.


The mid-market slowdown might not be a sign of a wider trend, however. The Thomson Reuters data from last week suggested M&A activity is at a ten-year high in the European Union. Announced deals between EU nations have totalled nearly double the value during the start of the year than at the same time last year. The start of the year has witnessed deals worth $206.9 billion, which last year at the same time stood at $95.5 billion.


Is the UK experiencing the Brexit blues?


While the pricing statistics have shown an increase, for UK’s mid-market M&A activity declined to levels experienced last in 2015. It was driven by a strong withdrawal of foreign buyers outside the Eurozone. These foreign buyers constituted only 51% of trade buyers in the previous six months. In 2015, the figure stood at 57%.


During the first quarter of 2017, UK’s mid-market deal volume fell by 9.5%. Deal value also went down by 15% compared to the levels last year. However, the end of 2016 did witness a volume increase of 10%. Furthermore, the figure was more or less in line with the volumes elsewhere in the Eurozone at the time so it’s hard to see whether Brexit is to blame.


In the Thomson Reuters data, UK was the third most targeted nation in terms of M&A activity, with deals worth a total $18.5 billion. The UK was also active in acquisitions, taking the second place with $19.5 billion worth of deals. According to the data, France is the EU’s most active M&A destination, with the country accounting for 26% of all deals by target country and 42% by buyer.


However, it’s too early to say how big of a Brexit impact the UK M&A is experiencing. The next index will be published in July and it might give more indication as to what is happening in the UK.

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