There’s an old adage in political science circles that can be applied to today’s PE market. When voters are asked if they approve of Congress, the overwhelming majority responds with an emphatic "No!" But when voters are asked if they approve of their local congressperson, many voice their support. The result: The makeup of Congress changes little, and overall approval remains stuck at 10%.
What does this have to do with private equity? According to our last Deal Terms survey, respondents don’t think multiples are unreasonable, despite market sentiment. In our last Global PE Deal Multiples Report, published in 2Q, 68% of respondents said current multiples are “within a range that allows for typical PE fund returns.” Only 28% responded "no," and a surprisingly small 4% said “not at all.”
That belies conventional wisdom toward the overall market, which is described as overpriced, frothy and often hard to justify. Our last US PE Middle Market Report noted higher EBITDA growth and higher US GDP growth in the second quarter as partial justifications for today’s multiples. But another possible explanation, as borne out by our investor surveys, might have less to do with the broader market and more to do with investors' confidence in their own particular deals, regardless of what other firms are paying for theirs.
Does this ring true? We’re curious what readers have to say, especially those directly involved in dealmaking. Our new survey is a quick one and helps us shed light on a valuation debate that isn’t going away any time soon. As a participant, you will receive the full aggregated report and be entered in a drawing to win a $300 Amazon gift card. We’ll update readers when the 3Q 2017 PE Deal Multiples Report is released later this year. If you’re interested in participating, go here.
In your opinion, are current deal multiples within a range that allows for typical PE fund returns?