Over the past year the gulf between buyers’ and sellers’ price expectations has narrowed, with price-to-earnings multiples falling and deals getting done, according to accounting firm BDO.
This is a change from the two years following the market peak between 2006 and 2007, where multiples remained high as potential sellers fought hard not to lose value, but few deals completed.
Now, despite continued economic woes, deals are going though when fairly priced.
With an overhang of raised capital in private equity funds and industry buyers looking to boost their operations, deals will be signed off at realistic multiples.
According to BDO’s Private Equity Price Index, multiples stood firm in the second quarter at 10.8 the same as the first three months of the year. However, this is a marked drop from 11.2 in Q4 last year and the 13x average paid by funds in the previous three months.
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