Why deal size is critical when analyzing PE buyout multiples
July 07, 2017
Global buyout activity has gradually surpassed median EBITDA levels in recent years. Creeping up to 10.2x on the eve of the financial crisis, LBO valuations have oscillated mostly in the 8x to 9x range dating back to 2010, a heartening trend for regulators.
As usual, though, headline numbers tell a slightly different story than do the details. In this case, the rise of smaller buyouts and particularly add-ons helped compress overall median EBITDA levels while inflating deal totals. As we’ve mentioned in the past, the “buy-and-build” strategy of adding on to platforms began in earnest in 2013, a trend neatly reflected in the orange line above.
Once EBITDA levels are broken out by buyout size, the difference becomes all the more transparent: The median multiple for sub-$25 million buyouts, which includes many add-ons, is less than half (5.6x) of the median valuation commanded for $2.5 billion+ buyouts (12.3x) over the same time-span.
In fact, median EBITDA levels hover over 10x for any deals over the $500 million mark—10.5x for transactions sized between $500 million and $1 billion and 11.2x for $1 billion to $2.5 billion.