BDO’s Private Companies Price Index (PCPI) has seen price/earnings (p/e) multiples paid by trade buyers for private companies fall from an average multiple of 12.1 in Q4 2011 to 11.5 in Q1 2012, but is up from an average multiple of 9.0 seen in Q1 2011.
The number of trade acquisitions fell from 461 in Q4 2011 to 442 in Q1 2012.
Peter Hemington (pictured), M&A Partner, BDO, says: “This quarter has seen both multiples and volumes fall. One could attribute this to a level of hesitation ahead of the Budget, and a lack of confidence in the market. Buyers are definitely studying due diligence reports cautiously and often being spooked by what they find.
“Ultimately private companies are finding it hard to fund deals. Banks are being discerning about what they are prepared to lend against due to limited capital, and are therefore rationing funds. Equally, any capital reserves private companies have they are choosing to retain for a rainy day.”
In contrast the Private Equity Price Index (PEPI) delivered a stronger performance falling only slightly to 14.1 for Q1 2012 from an average of 14.5 in Q4 2011, but still up on the 10.8 multiple seen this time last year.
PE transaction volumes improved from 94 in Q4 2011 to 96 in Q1 2012 with a significant increase in the proportion of disclosed private equity deals over GBP50m rising from 31% in Q4 2011 to 50% in Q1 2012.
Hemington says: “Many Private Equity firms are currently facing a wall of cash that they need to invest to ensure their own survival. This has caused an increase in competition for companies that come to market, which in turn has driven the increase in multiples that we have witnessed.
“With private companies choosing to maintain cash reserves, it has been the Private Equity industry that has come to the rescue of both businesses and, critically for the Government, the jobs of the employees. The former “Barbarians at the Gate” have now become “White Knights”. This has been particularly prevalent in the retail industry where high street names such as Jaeger have been rescued from the brink over recent weeks. We expect rescues by the Private Equity industry to continue making headlines into the next quarter.”
