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Private equity multiples for “good” firms on the up

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Multiples for good quality private companies increased in 2010 and are likely to continue to rise this year, driven by interest from both trade and private equity buyers, research from BDO shows.

Private equity firms on average paid 12.2 times multiples for companies in 2010, compared to 11.6 in 2009.

Meanwhile, trade buyers paid an average 11.7 times multiple for private companies last year, up from 11.2.

“Trade and private equity buyers appear to be gearing up to make further acquisitions and improvements in pricing are likely to tempt sellers back into the market,” said Christopher Clark, M&A partner at BDO.

And valuations are set to increase, the accountancy firm’s research shows. Twenty-four per cent of corporates and 30 per cent of private equity managers expect multiples to increase by ten to 20 per cent this year.

“It is clear that there is a greater appetite for quality deals at the right price. Increasing buyer confidence and a shortage of good businesses for sale has led to higher multiples, which in turn is fuelling optimism in the market,” Clark added.

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