2020 pcpi q3 · 2021. 1. 23. · pcpi v private equity | q4 2016 – q3 2020 pcpi2020 q3 private...

Roger Buckley, M&A Partner at BDO LLP commented:

In the midst of the pandemic which continues to have an enormous impact on society, such a recovery in deal volumes, not to mention a rise in values, may be quite a surprise. Yet there are good quality, resilient businesses which are maintaining or growing in value, and an array of domestic, international and financial buyers with strong firepower. Unlike the last recession, where liquidity was a huge issue, today there is no shortage of cash, and no shortage of buyers keen to spend.

Looking ahead, we expect to see increasing polarisation of the M&A market between resilient businesses and those that are struggling. In certain sectors, we may see an increase in stressed and distressed disposals as we move into 2021 and beyond.

PCPIQ32020

PRIVATE COMPANY PRICE INDEX

“After record low M&A deal volumes in Q2, the market saw a strong recovery in Q3. Transaction volumes rebounded by 63% with 408 transactions completing in Q3, up from 250 in Q2. Trade volumes rose from 214 in Q2 to 338 in Q3, while PE volumes nearly doubled to 70, from 36 in Q2. While levels are still around a quarter below the volumes seen before the pandemic hit, it is a very encouraging Q3 recovery.

The deal landscape was dominated by resilient businesses across all sectors, including a high proportion in the technology, life sciences and healthcare sectors. There was also a notable increase in deals in the construction and building products markets, which were quick to resume activity over the course of the summer.

The last quarter has seen good quality businesses, worthy of decent multiples, continue to transact. Trade multiples rose to 10.6x, up from 10.1x in Q2, while PE multiples surged to 11.6x from 10.3x in Q2. A similar profile has been seen with the FTSE, which climbed to 12.6x from 11.8x.

Read more in the PCPI sector spotlight blog: Life Sciences: Why now is a good time to invest in the outsourced pharma services sector.

If you would like to know more about how to value or understand M&A market dynamics for your company, please contact a BDO representative (overleaf).

”

Q3 SEES M&A TRANSACTION VOLUMES REBOUND AND DEAL VALUES MAINTAINED

PCPI V PRIVATE EQUITY | Q4 2016 – Q3 2020

PCPIQ32020

PRIVATE COMPANY PRICE INDEX

Q4 2016 TO Q3 2020 | VOLUME OF DEALS COMPLETED

672

486 509 503555

486521

509

631

509 485488

423506

99

6392 77

102

74121 110

117

90 96 10891

76

214

36

0

100

200

300

400

500

600

700

800

Q4 Q1 Q2 Q3

2017 2018 2019 2020

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

70

338

MAKING THE MOST OF THE PCPI/PEPI

The PCPI incorporates Enterprise Value to EBITDA multiples as the method of valuation.

The PCPI/PEPI tracks the relationship between the Enterprise Value (EV) to Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) multiple (EV/EBITDA) paid by trade and private equity buyers when purchasing UK private companies.

The private company EV/EBITDA is calculated from publicly available financial information on deals that complete in the quarter. At present, the Private Company Price Index (PCPI) indicates that, on average, private companies are being sold to trade buyers for 10.6x historic EBITDA, which rose from 10.1x in Q2. The PEPI indicates that, on average, private companies are being sold to private equity buyers for 11.6x historic EBITDA, up from 10.3x in Q2.

As private companies are generally owner‑managed, reported or disclosed profits tend to be suppressed by various expenses that may be non‑recurring under a new owner.

This will have been factored into the price the purchaser paid, but may not be reflected in the profits declared to the public.

The effect of this is that the EV/EBITDA paid as calculated from the publicly available information may be overstated. The PCPI/PEPI is calculated as the median of EV/EBITDA for deals where sufficient information has been disclosed. The PCPI Enterprise Value trailing four year average lifts to £14.3m (Q2 ‑ £13.7m) for trade deals.

The included deals for the PEPI dips slightly to an average Enterprise Value of £40.5m for private equity deals.

The PCPI/PEPI is an average measure and a guide, not an absolute measure of value, as there are many other factors that can have an impact on value.

10.5x 10.2x 10.0x9.6x

10.6x11.1x

12.8x

12.0x 11.6x11.3x

12.9x 12.9x

11.8x

13.0x14.0x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

2016 2017 2018 2019 2020

12.6x

Q2 Q1 Q2 Q3 Q4Q1 Q2 Q3 Q4Q1 Q2 Q3 Q4Q4 Q1 Q3

Private Company Price Index EV/EBITDA

Trade Private Equity

Private Equity Price Index EV/EBITDA

FTSE All-Share

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9083

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2020 pcpi q3 · 2021. 1. 23. · pcpi v private equity | q4 2016 – q3 2020 pcpi2020 q3 private...

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