Increasing Multiples

July 14, 2021

by a searcher from Western State University College of Law - Orange County in Calcutta, OH 43920, USA

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Reply by a searcher
in New York, NY, USA

I know I'm a bit late to the party here, but it's important to note two factors contributing to the perception of inflated multiples compared to, say, 2019: (1) interest rates are substantially lower than in 2019, allowing for the same financing costs to pay for higher multiples (same reason housing prices would be expected to go up when rates decrease, even if you ignore the COVID impact I'm about to mention), and (2) results for many industries or businesses were negatively impacted by COVID, so on a trailing twelve months basis the multiple has gone up even if the multiple on the next twelve months basis is flat. The trend is only exacerbated by the increasing prevalence of potential acquirers (including more and more searchers) and the embedded economic uncertainties facing sellers (is inflation increasing? are we near the top? is a second recession around the corner? The required margin of safety for a seller pursuing retirement is significantly higher than in 2019).

Reply by a searcher
from Carleton University in Calgary, AB, Canada

I agree with Alex above that it depends a lot on the industry. But overall, I have noticed a substantial increase in multiples. If I were to estimate, I'd say that multiples are up 1x EBITDA since pre-COVID in most desirable industries. I assume this is due to (1) lack of deals in 2020 due to COVID causing more money chasing deals in 2021; and (2) increasing popularity of search funds increasing the number of buyers (especially in the USA).

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