Carlos - owners are not flexing on multiples yet - is what I'm seeing. Many insist they'll make their '20 projections from a few months ago. In the very recent past they are starting to say "maybe slightly below". But, in most industries, we all know it's likely to be "a lot below" before the year is out. When their TTM figures are a lot lower (in the first few months after mid-March many still had healthy backlogs) - this will likely change.

Agree with what Anand shared; I am hearing the same from owners. Many seem to be in denial or are still unsure about how covid has affected their businesses. Anyone running a search right now should be extra cautious to ensure revenues and pipeline numbers are being reported accurately YTD.

I expect that we will not see multiples change much, they are actually very consistent over time and through cycles. What both responses above allude to, the other half of the equation (the EBITDA) will decline for some businesses, thus reducing the value if the decline is sustained. For those that suffered a couple month dip, but then returned to pre-COVID levels, not expecting to see much valuation change for those companies.

Rather than multiples buyers are focused on the impact COVID may have in EBITDA. The big question here is wether or not buyers will get comfortable with the adjustments. Going forward COVID adjustments will be a huge discussion point.

I would just suggest a word of caution. Multiples are used to get an idea of valuation but after due diligence most always values are less than originally indicated. I think that we have only gotten started with Covid-19. I hate to sound pessimistic, but some industries may not rebound at all. They make just get wiped-out altogether. Retail is one sector that comes to mind. This morning Lord & Taylor filed for bankruptcy along with many other well known retailers. Small business owners are always overly optimistic (in-terms of revenue and growth) and unrealistic (about efficiency and expenses). Rather than focus on the multiple, I would look at the numbers for the business within the first 6-months of 2020 and base your valuation on that. I would remind everyone to think about the disclaimer that most mutual fund companies make "Past performance is not indicative of future results". I hope I'm wrong but more importantly don't want to see anyone within the searchfund community get hurt by paying too much. Caveat Emptor!

Wait until Q3 numbers - that's where you'll see it. Q1 and Q2 will be fine but misleading. Forward orders from Q1 were completed in Q2 If Q2 forward orders were down they won't show up until Q3. I'm seeing this with one company now. Tracking very well for 2020 based on first half results but the drop is occurring right now. Check July sales figures - that will be the canary in the coalmine.

I have deals in three unrelated sectors at this moment. Part of the work involves comparison to multiples. What I found is that sellers are accepting the need for a lower multiple, but they may not need to actually reduce the selling price. It depends on how well the specific company has done in the COVID time period. My findings are that some companies must take a hit (the COVID discount) and some do not have to. Key data is found in the monthly revenue comparison for February through July for 2018, 2019 and[redacted]One other finding, in one sector I see one COVID resistant operation and one that is about 100 days away from permanent closure. Differentiator in this case appears to be debt forcing the already weak operator to fold which drives revenue and market share to the low debt surviving operator. As it relates to multiples, the failure of one operation will not be included in a survey of sale multiples, but the COVID resistant asset will be.

Thank you for all the responses. It’s very helpful to get an idea on how different people are thinking through this unique situation.

Carlos, it truly varies industry to industry. In the "dirty" businesses, niche manufacturing type stuff, I've seen interest still be semi-strong in the 4-5x range. In another one of our deals, a dairy manufacturer, it wouldn't even come close to sniffing 4x, would be lucky to get 2.5-3x based on feedback.

To the contrary, great companies that have proven resistant to Covid-19 issues are at a premium because the same amount of money is chasing fewer deals. The other side of that coin is that multiples are being held down by the lack of credit available from senior banks. Overall I would say that multiples are pretty steady. The SBA is still a good option but be ready to wait a while. We just closed a transaction that was delayed about six weeks by the bank/SBA trying to figure out what they needed.

Biggest issue we are seeing right now which ties into multiples is hesitant lenders. With all the stimulus money floating around many banks are not really sure what their balance sheets are going to look like (example what is their real estate portfolio going to look like in 6 months). Most Relationship Mangers are still positive but once the deal moves up the chain to the credit guys or higher ups there just isn't a lot of new loans being made. Our last two deals Tecum as mezz lenders ended up doing the entire debt package to get the deal closed because banks were hesitant and slow to move. Summary - whatever you are modeling for debt in your deal make sure the debt piece is there. T

PEs operating in the lower middle market consistently tell us that deals are coming back and demand (especially considering all the dry powder within funds) keeps multiples at - or even above - pre-Covid levels. That's across the broader industrials space in my case...