From a macro viewpoint, potential deal flow in 2015 is on pace with 2014, where megadeals accounted for more than 35% of all transactions in Q1 and Q2. In that same first half of 2014, deals were up 45% from 2010. Also interesting is that levered deals have maintained average EBITDA multiples above 8.5 times for every year but one since 2008 (2007 dipped to 7.7).
Setting aside the global and macro picture, what about middle and lower middle market M&A activity? The EBITDA multiplies will overlap somewhat, but generally follow these categories:
EBITDA Multiple
$5 – 10 MM 7 – 11x
2 – 5 MM 5 – 7x
<2 MM 2 – 5x
Many factors are considered in the ultimate multiple, but some of the more prevalent contributors to the range variance are the following:
- Hot industry. Currently, high tech, energy and health care lead consumer and financial services.
- Last 2 – 3 years of increase in EBITDA.
- Realistic projected EBITDA growth.
- Lack of organic growth for strategic buyers.
- Capability to leverage senior debt.