Valuation Trends for the Small to Middle Market

Valuation Trends for the Small to Middle Market

By Claire Chadwick | Valuation and Forensic Services Associate

M&A Deal Trends – 3rd Quarter 2019 Update

Through the 3rd Quarter of 2019, private business sellers continued to experience advantageous market conditions.  Valuation multiples have remained relatively strong, and were unchanged from the previous quarter.  This strength in valuation multiples is primarily driven by the availability of debt capital.

One of the most common valuation multiples is MVIC/EBITDA. MVIC is an acronym for market value of invested capital. EBITDA is an acronym for earnings before interest, taxes, depreciation, and amortization, and is also a proxy for operating cash flow.

Transaction activity and related deal multiples can vary greatly depending on the size of the business, economic conditions, industry conditions, interest rates, and political factors (e.g., trade tariffs). To gauge the state of the M&A markets, GF Data® provides transaction statistics on private equity-sponsored M&A transactions with deal values ranging from $10 to $250 million.

Summary of MVIC/EBITDA multiples by industry [1]

MVIC/EBITDA Multiples by Industry | Virginia Valuation Firm

As is indicated in the table above, EBITDA multiples ranged from 6.4x to 9.9x in the third quarter of 2019, with an average multiple of 7.4x for the trailing twelve months. The average multiple was equivalent to the previous quarter’s average, and was also at the higher end of the 7.1-7.4x rolling two-period multiple range that has continued since the second half of 2017.  Although the market conditions appear unmoved, GF Data notes two thought-provoking points that show a lack of harmony with current conditions.  First, “frothy” pricing situations are happening for more appealing smaller businesses, as prices appear unsustainably high. Second, owners of less attractive companies at $50-100 million are partaking in deals at lower multiples, while enthusiastic bidding is still taking place for more attractive companies.  GF Data notes that while they thought this would change over time, the diminished valuations have continued. They believe that owners of strong companies in the $50-100 million value range, whose companies unfortunately lack that extra inspiration, would prefer to exit with a lower multiple than experience further decline in the future.

GF Data also notes that the level of debt financing used in acquisitions has slightly increased over the last year: 3.7x (total debt/EBITDA) during the 3rd quarter of 2018 and 4.1x (total debt/EBITDA) during the 3rd quarter of 2019.

Trend for Smaller Private Business Deals

Smaller deals (transaction values below $10 million) experienced a deteriorating trend with average selling price/EBITDA multiples averaging 3.7x, declining from a peak of 5.0x in the 3rd quarter of 2018.[2] Moreover, transaction multiples for smaller deals tend be more volatile as the landscape of buyers are significantly different as compared to larger financial buyers such as private equity firms.

Valuation Trends for Small to Middle Market | Virginia Valuations

Proceed with Caution

The multiples noted in the charts above are based upon an average of several thousand transactions. Therefore, blindly applying these multiples to a particular business might not be appropriate. However, these multiples may serve as a starting point for a particular transaction, but will need to be adjusted for a particular company’s facts and circumstances (e.g., growth expectations, industry conditions, and overall company risk profile).

How Can Keiter Help?

Keiter guides privately-held businesses in analyzing and coordinating all aspects of the transaction so that the results are most favorable. By working with clients at an early stage, we are able to understand their business and help identify specific needs. We help sellers in maximizing value and assist acquirers in ensuring the acquisition is a good fit for their organization and the owner’s goals.

Maintaining the structure of a transition so that it is tax efficient is one of our top priorities. Our approach minimizes net cash outflows for a purchaser and maximizes net cash received by a seller after taxes.

Through our relationships with investment bankers, lenders, and legal counsel, we are able to assist clients in developing the required team to complete successful mergers, acquisitions, and divestitures. Interested in talking with our Valuation team? Contact us | 804.747.0000


[1] GF Data M&A Report – November 2019.  Conshohocken, PA:  GF Data Resources, LLC, 2019
[2] DealStats Value Index Digest – 4Q 2019.  Portland, OR:  Business Valuation Resources, LLC, 2019

Additional Valuation Resources

Share this Insight:

About the Author

Claire H. Chadwick is an Associate in Keiter’s Valuation and Forensic Services Group. She performs business valuation services for purposes of mergers and acquisitions; estate, gift, and income taxes; litigation and shareholder disputes; employee stock ownership plans; reorganizations; marital dissolution; business planning; buy/sell agreements; and financial reporting. In addition, she performs litigation consulting services including damages and lost profits calculations. Claire also assists with forensic accounting investigations for corporate frauds.

The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.


Contact Us