15. Entry multiples: Falling median multiple, competition for attractive objects
The uncertainty caused by the pandemic have reduced median entry multiples in buyout deals, but well-performing companies still achieve attractive valuations.
Median entry multiples fell notably for the first time in over ten years, from 11 in 2019 to 10 in 2020. Entry multiples have been steadily increasing since 2009, until 2019. For both private equity and other deals, entry multiples fell.
“Many companies have lost revenues due to the pandemic. Ever-changing infection control measures has affected even well-performing companies. This uncertainty causes difficulties in valuation processes. As a result, a lot of transactions have been postponed, and valuations have fallen due to the risk a potential buyer take on. This causes entry multiples to fall, which is not only the case for private equity, but for all deals,” says Joachim Høegh-Krohn, CEO at Argentum.
Difference between buyout deals and other deals fell
The difference in entry multiples between buyout deals and all deals fell in 2020. In other words, the median entry multiple in buyout deals fell less than for other deals, and the difference have not been smaller in the last ten years.
“Data show an increasing price development within the buyout space in the Nordics over the last years. This stems partly from current strong access to external finances, healthy competition for the best objects, available capital committed to funds, and finally, attractive alternative to a sale, e.g. IPOs,” says Henrik Lisæth, Partner and Co-Founder at Explore Equity.
“Still, price is not everything for today’s owners. We find company founders and owners that are eager to stay onboard for the next growth journey, and hence look more for experience and competence rather than price,” says Lisæth.
Companies able to capitalise on pandemic
Among the transactions, we also find companies that were able to capitalise on the pandemic and changing consumer patterns.
As a result, there are a lot of interest in the companies that have maintained, or even increased their revenues during the pandemic, leading to some large-cap transactions with high entry multiples.
This causes the average multiple to increase compared to 2019. This is especially the case with transactions involving ICT companies, which usually have higher entry multiples due to relatively low EBITDA.
Entry multiples (EV/EBITDA) for Nordic buyouts
| Year | Median | Average | Number of transactions |
|---|---|---|---|
| 2015 | 8.1 | 8.8 | 72 |
| 2016 | 8.1 | 10.0 | 75 |
| 2017 | 8.8 | 10.7 | 69 |
| 2018 | 9.4 | 10.9 | 62 |
| 2019 | 11.0 | 11.3 | 51 |
| 2020 | 10.0 | 11.7 | 45 |