The value of U.S. companies sold this year increased significantly over 2015, according to a new report from Milwaukee-based Schenck M&A Solutions.
Schenck used mergers and acquisitions price information gathered by GF Data to determine that the EBITDA multiple, a ratio used to determine the value of a company, increased from 6.7 times in 2015 to 7 times in 2016 (year-to-date). The historical average multiple is 6.3 times, and the multiple has not increased more than two points annually over the previous four years.
The most significant multiple increase was in the $10 million to $25 million range (the lowest tier included in the national report), which grew from 5.8 times EBITDA in 2015 to 6 times EBITDA in 2016.
When broken down by industry category, multiples increased year-over-year in business services, retail, distribution, media and telecom and “other.” Multiples declined in manufacturing, health care services and technology.
The Milwaukee market has tracked with these national trends in 2016, said Ann Hanna, managing director at Schenck.
“We are not as different as the national average because we have buyers coming from all over the country,” she said. “If you have transaction values above $10 million, above $20 million, it will attract private equity groups and strategic buyers from all over the country.”
There are a number of factors that could impact a company’s ultimate valuation, but the overall trend has been toward higher deal values, Hanna said.
“They break down by industry and I think it’s more accurate because industries can vary pretty widely so it’s best to look at your particular industry,” she said. “Each company will have their own story and they’ll have factors that will either increase or decrease from the average.
“There is still more buyers than sellers. There’s still a lot of money chasing deals. I think right now, there’s starting to be a very positive momentum as far as the business climate. We anticipate that values are going to stay high, especially as business owners and buyers anticipate lower tax rates.”
