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Sharp fall in deal volumes countered by hold in company prices

10 Nov 08

Prices paid for private companies by trade and private equity buyers held steady in Q3 2008, but deal volumes fell sharply, according to research from accountants and business advisers BDO Stoy Hayward

The latest Private Company Price Index (PCPI), which tracks price/earnings (p/e) multiples paid by trade buyers for private companies was 11.5 times (sold for 11.5 times their historic after tax profits), up marginally from 11.3 times in the previous quarter.

The Private Equity Price Index (PEPI), which shows comparable multiples on sales to private equity was 11.2 times, which remained relatively unchanged from the previous quarter’s 11.1 times.

Both the PCPI and PEPI index held steady last quarter as vendors held off from selling at a discount in a turbulent market. However, the total number of deals in Q3 2008, at 567, was 41 per cent down on Q2 2008 and 35 per cent down against the same period last year. The volume of trade sales fell by 36 per cent over the year and private equity deals dropped by 28 per cent.

The FT Non-Financials Index (FTNF), which charts public companies’ p/e ratios, fell 11% this quarter from 12.4 times to 11.0 times, most noticeably hit by the turmoil in the markets caused by the collapse of the banking sector in the second half of September.

Jon Breach, M&A Partner at BDO Stoy Hayward, says: “Until Q3 2008, it was only the market for large deals of £250m+ that had been hit as banks became reluctant to lend to each other and the required syndication, or risk sharing, of debt became almost impossible to facilitate. “

Jon continues: “The impact was felt less in the mid-market as the majority of transactions were comfortably financed by individual banks without the need to club together pre deal or syndicate post deal. Since Q3 2008 however, the seizure in the banking market has meant that all deals have been affected, irrespective of size.”

Jon adds: “Given the inflationary impact of energy prices, labour rates and financing costs, we see the next year being characterized by a growing number of companies being hit by the wider economic malaise and defaulting with their lenders. This will result in a significant increase in the volume of accelerated M&A deals, which is good news for buyers seeking to increase market share by acquiring undervalued assets.”


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BDO Stoy Hayward | deal volumes | Private Equity Price Index | Jon Breach


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