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Lincoln Private Market Index sees first decline since Q1 2020

The Lincoln Private Market Index (Lincoln PMI), an index that tracks changes in the enterprise value of US privately held companies, saw a decline of 0.5% in Q2, its first quarter-over-quarter decline since Q1 2020. 

The modest decline was driven by a contraction in multiples as private company performance remained relatively resilient quarter-over-quarter. 

Since the onset of the year, Lincoln has observed a pull-back in multiples, however, until Q2, earnings growth of private companies has more than offset this contraction and led to continued growth in the Lincoln PMI. This quarter an inflection point was reached, as earnings growth did not offset the contraction in private company multiples, which declined from 11.1x to 10.8x in Q2.

While recessionary fears permeated the economy in the first half of 2022, demand for private companies’ products and services remained strong. Based on data from Lincoln International’s proprietary database, private companies experienced average quarter-over-quarter growth in LTM revenue of 4.7%.

On the other hand, based on the same subset of companies, LTM EBITDA grew just 2.3% resulting in an average margin contraction of 0.5% quarter-over-quarter with technology companies experiencing the greatest margin pressure.

However, while quarter-over-quarter LTM performance has been resilient, an analysis of just year-to-date performance in 2022 reveals a different trend. While year-to-date revenue has grown 13.3% compared to the same period in 2021, EBITDA has been approximately flat, only growing 0.6% with margins contracting 2.3% on average, indicating that more recent company performance is trending negatively compared to the prior year. Notably, revenue growth has exceeded EBITDA growth in each of the last four quarters.

Additionally, over the last year, EBITDA adjustments as a percentage of total adjusted EBITDA increased from 22.5% to 27.8%.

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