That was Frothy; This is Serious

This is somewhat of a continuation of my last post, which featured graphs of M&A volume and size in recent months.

Here is another graph to complete the picture, showing average deal value as a multiple of EBITDA.


From the middle of 2005 to the middle of 2008, valuations were quite high, generally between 12-14x EBITDA.  This was the frothy period of middle-market M&A. 

(For some reason, folks involved in middle-market M&A – including investment bankers, private equity managers, leveraged lenders, media, etc. – love to use the word “frothy” in describing this timeframe that was marked by high valuations heavily dependent on irresponsible lending.  Perhaps the most fitting definition of frothy would be “playfully frivolous in character or content.”  An alternative definition would be “covered with foam” like a glass of beer.  I happen to like beer.  One online dictionary’s antonym for frothy is “serious” although I don’t see how this applies to beer.  But I digress.)

A more likely return to normalcy would be average multiples of 8-10x EBITDA, as seen in most quarters from 2000 through 2004.  Right now we’re below that.  Go figure!  Anyone who is planning to wait until deals are being done in the 12-14x range again should be planning to wait a long, long time.


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