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Conditions ripe for boost in transaction volumes

A prolonged period of pricing stability, increased lending and the General Election mean the number of transactions is set to rapidly increase by the end of the year, according to the latest Private Company Price Index and Private Equity Price Index from accountants and business advisors BDO.

According to the PEPI, the average price/earnings multiples paid by private equity companies rose 32 per cent to 13.3 price times earnings in the past 12 months and 11 per cent in the last quarter alone.

Meanwhile, the PCPI which tracks price/earnings multiples paid by trade buyers for private companies is at 12 times for Q1 2010 compared to 11.9 times for Q4 2009.

This pricing stability has been helped by an increasing availability of debt, with government pressure and a general desire from banks to support existing relationships fuelling optimism amongst private equity buyers.

The current status quo in activity has been largely caused by political uncertainty, with many vendors and purchasers waiting on the outcome of the General Election, before making the move to buy or sell.

Christopher Clark, M&A partner at BDO, says: “There has been a real dearth of high quality businesses up for sale, so the better companies out there have commanded premium multiples as was seen with the Pets at Home transaction.

“However there is light at the end of the tunnel for buyers. Prices have been stable now for a considerable period of time. So with vendor and purchaser price expectations narrowing, we can expect the trickle of companies up for sale to turn into more of a steady stream.

“It remains to be seen how quickly this flow will increase but it’s clear that the last six months of the year will see a significant increase in the number of transactions and that clarity on the next government, and their fiscal plans, will provide the final catalyst for buyers and sellers coming to the negotiating table.”

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