According to a February 2014 report issued by GF Data on business valuation multiples, average trailing twelve month EBITDA multiples for completed private equity (“PE”) transactions between $25M and $50M rose to 6.9x in 2013. The data is based on actual closed transactions from over 200 lower middle market PE firms.
The data indicates that acquired companies with the strongest revenue growth and the highest EBITDA margins relative to their industry achieved the highest multiples.
REAG’s CEO, Scott Mashuda, was not surprised by the results of the GF Data analysis. “Private equity firms continue to be flush with investable capital and the number of quality businesses available for sale remains minimal. The results are that PE firms are pushing downstream looking for new opportunities and they’re willing to pay higher multiples to secure them.”
If you are considering a sale of your business within the next five years, it may make sense to accelerate those plans due to the current state of the market. “With current demand for acquisitions far outweighing supply, now is a great time to consider selling your business,” Mashuda said.
When income statements and balance sheets are strong most business owners aren’t thinking about selling. But, that’s when you achieve your highest valuation. “It pays to be a contrarian,” said Mashuda.