Q1 2021 Market Update - EBITDA MULTIPLES RISE IN THE Fourth QUARTER OF 2020
The COVID-19 pandemic was putting a stranglehold on the economy for most of 2020 and causing an unprecedented economic impact on small businesses, the uncertainty the onset of the spread of the virus caused early in the second quarter of 2020, sellers appeared to have initially forecasted a worst-case scenario, with EBITDA multiples falling to 3.7x, their lowest level since the second quarter of 2018.
However, by the second half of 2020, EBITDA multiples returned to levels near historical norms, at 4.7x in the third quarter and 4.4x in the fourth quarter of 2020. In doing so, this continued the trend of the median EBITDA multiple reporting at its highest level during the second half of the year as seen from 2015 to 2018 and in 2020.
Moving forward, with 2020 now in the rear-view mirror but with small-businesses still navigating through the
COVID-19 pandemic, supply chain disruptions and government economic and business support measures.
EBITDA Multiples Rise in Q4 of 2020
The selling price-to-EBITDA multiple settled at 4.4x in the fourth quarter after the multiple had rebounded in the third quarter of 2020, to 4.7x, after seeing a significant decline in the second quarter, to 3.7x.
EBITDA Margins remain at 11%
EBITDA, as a percentage of net sales, went unchanged from the third quarter of 2020 to the fourth quarter of 2020, at 11%. Over the past two years, EBITDA margins have seen little change, ranging from 10% to 12%. However, in the years prior, EBITDA margins fluctuated by a wider range, from 9% to 15%. The selling price-to-EBITDA multiple settled at 4.4x in the fourth quarter after the multiple had rebounded in the third quarter of 2020, to 4.7x, after seeing a significant decline in the second quarter, to 3.7x.
Selling Price to EBITDA by Sector
A new feature has been added to this graph, which now includes the median figures for the last 12 months. This allows for a comparison between the historical median and the current trends affecting the median. A minimum of five transactions were needed for each sector to be displayed in the graph.
The historical median EBITDA multiple changed for three of the 18 sectors. The median EBITDA figure in the agriculture, forestry, fishing, and hunting sector moved higher, to 7.9x, from 7.6x, and the mining, quarrying, and oil and gas extraction sector increased, to 8.6x from 8.5x.
Conversely, the EBITDA multiples moved lower for the professional, scientific, and technical services sector, to 6.5x, less than the median published last quarter, which was 6.6x. EBITDA multiples remain 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, and the other services sectors, 3.1x. The median across all industry sectors is 4.4x.
10 yr Median Selling Price to EBITDA by Sector (Private Companies)
In most years, multiples across the 15 sectors appeared to rise and fall based on cyclical trends. This is especially applicable in 2020, due to COVID-19, certain businesses are flourishing due to increased revenues, whereas, conversely, other businesses may be fairing worse.
Data source: DealStats Value Index (Q1 2021) - 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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