Each quarter, Kratos Capital evaluates price multiples on the worldwide realized sales of companies over the last twelve months. General trends of the global M&A market can be read from the shifts in the multiples over time.
For the twelve months period up to March 31, 2015 we observed the following:
- The number of realized acquisitions of companies with sales between USD 10 to 500 million increased significantly compared to prior year’s period (approx. 7% more transactions).
- Significant increase of company valuations in almost all sectors: Highest revenue multiples were paid in the IT-Software, Pharma/Biotech and Utilities sectors.
- The highest increase in EBIT-multiples is recorded in the Telecommunications sector.
- A decrease in both EBIT-multiples and revenue multiples occurred in the Retail sector.
We are constantly monitoring global realized mergers and acquisitions of target companies with revenues in the range of USD 10 to 500 million.
Multiples are often used for a rough estimation of the value of a company. By multiplying a key figure (e.g. revenues or EBIT) of the company of interest with a sector-specific multiple, the pertaining company value («enterprise value», i.e. including debt) is derived. In practice, multiples show a great dispersion around the mean and also vary over time.
Of course, managing and structuring the sales process play an essential role for the realized price in a transaction.
In the figure above, for the calculation of the EBIT-multiples, we have eliminated in the basis all companies with an EBIT-margin of less than 1% to avoid the influence of extreme values. We show the median of the latest twelve months (dark) as well as the median of the prior year’s period (light). Furthermore we show the variation over the two middle quartiles as a brightened bar, i.e. 25% of all transactions with the lowest multiples and 25% of the transactions with the highest multiples are not shown.