Fourth Quarter Private Company Price Index show valuations rising

Mergers and acquisition activity declined for the eighth successive quarter to 445 publicly reported transactions– a 20 per cent fall on both the third quarter of 2009 and the same period in 2008. Deal activity during 2009 was supported by the growth in ‘distressed’ transactions driven by pressure from the banks. More recently, there has been a fall in the level of bank-driven activity, which has reduced the overall number of transactions.The recovery in public market multiples particularly during the second half of 2009 has been very marked. For average public company prices and more on the multiples achieved last year, subscribe to the Business Sale Report. Over the last six years, deals included in the PCPI have had a mean size of approximately £21 million and a median size of around £6 million, though the PCPI is an average measure and guide rather than an absolute measure of value.Despite the low level of deal volume, the prices paid for privately owned companies have shown a sharp rise since the trough in the beginning of 2009. The PCPI, which tracks price/earnings (p/e) multiples paid by trade buyers for private companies rose to 11.9 times, its highest level since Q1 2008, and an 18 per cent increase over the last three quarters. This is broadly consistent with the Private Equity Price Index (PEPI), which shows comparable multiples on sales to private equity.

Subscribers to the Business Sale Report can access more information on the reasons behind this price increase.

What we may be seeing is a return to ‘normality’ on two fronts. Firstly, in the past the FTNF traded at a premium to the PCPI, by around 30 per cent, reflecting greater liquidity within the public markets. Secondly, trade buyers should be capable of paying similar or even higher prices for businesses than their private equity counterparts, by extracting synergies that enables them to pay a strategic price.

During 2010 we expect to see both the PCPI and PEPI continuing to recover, but only at a modest pace.

For more details on the year to come, subscribe to the Business Sale Report.  

Whatever the outcome of the election, cuts to public spending and tax increases are anticipated in the second half of the year, which will have downward pressure on the recovery. Deal volumes are expected to rise more significantly in 2010 from stability in pricing that will help align the expectations of buyers and sellers.

For prediction for the private equity market in 2010, subscribe to the Business Sale Report.