Q4 Market Update - EBITDA MULTIPLES RISE IN THE THIRD QUARTER OF 2020
With the Coronavirus pandemic affecting small businesses across North America throughout the second quarter of 2020, which was evident by the previous decine in EBITDA (Earnings Before Interest Depreciation and Amortization) multiples which moved lower across all industries in the third quarter of 2020, the third quarter is marked by a rise in EBITDA multiples, which possibly signals a hopeful view that better times are ahead.
EBITDA Multiples Rise in Q3
In the third quarter of 2020, EBITDA multiples seen in transactions across all industries rose to their highest level since 2018, 5.1x, which is up from the 3.7x multiple in the second quarter of 2020, when the multiple fell as deal activity nearly came to a standstill due to the uncertainty from the government-mandated lockdowns and the effects on the economy.
EBITDA Margins decline to 11%
EBITDA, as a percentage of net sales, fell to 11% in the third quarter of 2020, moving up 1.0 percentage point from its rate of 12% in the prior quarter. The most recent six quarters, EBITDA margins have seen very little change, coming in at 10% or 12% in each quarter.
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. With the uncertainty surrounding the presidential election and the coronavirus pandemic. The graph below highlights the trend of the EBITDA multiple moving opposite to that of EBITDA margins.
Selling Price to EBITDA by Sector
EBITDA multiples remained mostly consistent across the 18 sectors through the third quarter of 2020.
A decline in the EBITDA multiple was seen in the professional, scientific, and technical services sector and the healthcare and social assistance sector, to 6.6x and 6.0x, which is down from 6.7x and 6.1x, respectively. The median EBITDA multiple moved higher in the information sector and the arts, entertainment, and recreation
sector, to 11.3x and 3.8x, which is up from 11.2x and 3.7x, respectively.
EBITDA multiples are the highest for the information sector, 11.3x, and the mining, quarrying, and oil and gas extraction sector, 8.6x, and are the lowest in the accommodation and food services, 2.6x.
10 yr Median Selling Price to EBITDA by Sector (Private Companies)
Data source: DealStats Value Index (Q4 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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