BOSTON, March 21,
2024 /PRNewswire/ -- Capstone Partners, a leading
middle market investment banking firm, released its 2023
Middle Market M&A Valuations Index, reporting that
while equity markets largely shrugged off the rapid succession of
interest rate hikes in 2023, middle market merger and acquisition
(M&A) valuations experienced downward pressure. Elevated
transaction costs, uncertainty over projected cash flows, and a
reserved private equity buyer pool contributed to average M&A
valuations falling to 9.6x EV/EBITDA in 2023, compared to 9.9x in
2022. Several deals that transacted at premium valuations helped to
bolster this average, while the median EBITDA multiple fell more
drastically to 8.0x EV/EBITDA compared to 8.5x in the prior year.
While business owners encountered a challenging valuation
environment, several bright spots of the market have provided
optimism for resilience and recovery in transaction value in 2024.
Notably, average three-year EBITDA purchase multiples in the
Business Services, FinTech & Services, Industrial Technology,
Technology, Media & Telecom, and Transportation, Logistics
& Supply Chain industries improved on a year-over-year (YOY)
basis.
Buyers demonstrated heightened discipline in middle market
M&A processes in 2023, refraining from overextending themselves
to acquire target companies. While high-quality assets still
commanded solid buyer interest and competition in bidding, market
clearing bids were less frequent than in prior years. In 2023, 31%
of transactions closed at 10x EBITDA or higher—a decline from 38%
in 2022 and 43% in 2021. This may have coincided with buyers moving
to lower levels of the middle market, a common occurrence amid
market uncertainty. The average enterprise value of sold target
companies amounted to $89.4 million,
a substantial drop from $139.3
million in 2022. When buyers did pay premium multiples,
typically these businesses had demonstrated gross margin
defensibility, healthy revenue visibility, and sustained product or
service demand.
Many dealmakers are optimistic that 2023 marked a trough for
both middle market M&A volume and pricing, with 2024 positioned
to experience a rebound in purchase multiples. Seller and buyer
expectations are anticipated to become more aligned after such
dislocation post-pandemic, when purchase multiples at times became
detached from fundamentals. For the first time in nearly a decade,
the cost of money is meaningful, and likely will be for the
foreseeable future as the Federal Reserve works to meet its
mandate. However, quality companies with sound financials and
resilient end markets are poised to garner buyer appetite. Private
equity buyers, facing limited partner pressure to generate returns,
are expected to reenter the M&A markets in 2024 after sitting
on the sidelines for much of 2023. The valuation environment may
take some time to recover, but the M&A and macroeconomic
environment in 2024 is expected to present a favorable backdrop for
many prospective sellers to achieve an optimal exit.
Also included in this report:
- A breakdown of three-year average middle market M&A
valuations by industry.
- Discussion of middle market M&A transaction volume on an
industry level.
- Commentary on the operating performance of target companies
sold in 2023 compared to prior years.
To access to full report, click here.
ABOUT CAPSTONE PARTNERS
For over 20 years, the firm has been a trusted advisor to
leading middle market companies, offering a fully integrated range
of investment banking and financial advisory services uniquely
tailored to help owners, investors, and creditors through each
stage of the company's lifecycle. Capstone's services
include M&A advisory, debt and equity placement, corporate
restructuring, special situations, valuation and fairness opinions
and financial advisory services. Headquartered in Boston, the firm has 175+ professionals in
multiple offices across the U.S. With 12 dedicated industry groups,
Capstone delivers sector-specific expertise through large,
cross-functional teams. Capstone is a subsidiary of
Huntington Bancshares Incorporated (NASDAQ:HBAN). For more
information, visit www.capstonepartners.com.
For More Information Contact:
Sarah Doherty
Director of Market Intelligence
sdoherty@capstonepartners.com
617-619-3310
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SOURCE Capstone Partners