Q3 Market Update - EBITDA MULTIPLES FALL IN THE SECOND QUARTER OF 2020



With the Coronavirus pandemic affecting small businesses across North America throughout the second quarter of 2020, EBITDA (Earnings Before Interest Depreciation and Amortization) multiples moved lower across all industries, coming in at 4.4x.


EBITDA Multiples Declined


The decline to the median EBITDA multiple in the second quarter of 2020 was representative of the impact that the Coronavirus had on the economy during the quarter, as the multiple in the first quarter of 2020 (pre-pandemic), 4.7x, was the highest multiple to start a year over the five-year period highlighted in the chart below.


EBITDA Margins Rise to 11%

EBITDA, as a percentage of net sales, rose to 11% in the second quarter of 2020, moving up 1.0 percentage point from its rate of 10% in the prior quarter, when it reported at its lowest level since the fourth quarter of 2018. Since 2014, EBITDA margins have ranged from 10% to 15% but have noticeably trended lower since the Q2 2019 compared to the years prior.


The selling price-to-EBITDA multiple fell in the second quarter of 2020, to 4.4x and has fallen in three of the past four quarters. Prior to 2019, the EBITDA multiple reported higher in the second half of each year, but the multiples in 2019 broke this trend and declined instead. The graph below highlights the trend of the EBITDA multiple moving opposite to that of EBITDA margins.

Selling Price to EBITDA by Sector

The EBITDA multiple for the transportation and warehousing sector increased, to 4.2x, after previously coming in at 3.8x. EBITDA multiples moved higher in the mining, quarrying and oil and gas extraction sector, to 8.6x, when compared to the prior median published last quarter, when it came in at 8.5x. Meanwhile, the EBITDA multiple for the information sector and the healthcare and social assistance sector moved down, to 11.2x and 6.0x, when compared to the prior median multiple published from the last quarter, which was 11.3x and 6.1x, respectively.


EBITDA multiples are the highest for the information sector, 11.2x, and are the lowest in the accommodation and food services, 2.6x, and the other services sectors, 3.1x. The median across all industry sectors is 4.4x.

Median Selling Price to EBITDA by Sector (Private Companies)

Data source: DealStats Value Index (Q3 2020) - The DealStats Value Index summarizes valuation multiples and profit margins for private companies that were sold over the past several quarters. Business Valuation Resources (BVR) captures this private company transaction data in its DealStats platform.

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