Impact of Rising Multiples

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by a searcher from Columbia University - Columbia Business School
in New York, NY, USA

1yr ago

Impact of Rising Multiples

Search funds historically aimed to keep multiples around 5x EBITDA, where cash flow could comfortably support debt without undue risk. Today, median multiples hover around 7x, with deals in many industries reaching 10x or more.

Is the risk profile for the average search fund increasing? Or are we seeing a shift in the typical deal structure (e.g., reducing leverage or adjusting debt terms)?

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reply by an investor 1yr ago
from Ohio Wesleyan University in Charlotte, NC, USA

Love this question - and there are some great comments here. This certainly seems to be the case for $2 million + EBITDA businesses, but when we buy smaller companies (mainly add-ons to existing portfolio companies), we still see lower multiples.

reply by an investor 1yr ago
from Columbia University in Fairfax, VA, USA

I think increasingly, Searchers are forced to adopt the old PE adage... "you pick the price, I pick the terms" -- meaning, structure and terms (e.g., earnouts, forgivable notes, etc.) are becoming increasingly important to get deals done.