Values have robustly recovered from the recessionary lows of 2009 and 2010. According to GF Data, the average price paid in the most recently completed year (2013) — for private business sale transactions in the $10 million to $250 million range — was 6.7x EBITDA (earnings before interest, taxes, depreciation and amortization). By way of comparison, multiples reached just 6x for this same size range in the bubble years of 2005, 2006 and 2007.
Values have recovered from the recessionary lows of 2009 and 2010 in all markets, not just the energy sector, said Perkins, who consults on the purchase, sale and valuation of companies. There are several reasons. Equity is abundant, debt is available and cheap, there are plenty of aggressive buyers, and the number of sellers is surprisingly low, Perkins said.
By all accounts, debt financing seems to be amply available and rising in the amount extended for business acquisitions in the United States. Debt financing – for deals completed in the $10 to $250 million transaction value range – rose to 57% in the second quarter of 2014. This is for senior and sub-debt (combined). In recent years, it’s been 47% to 50%. Total debt loaned as a multiple of EBITDA – for all transactions in the $10 to $250 million range – averaged 3.9x, up from an average of 3.4x in recent years (2011 through 2013). The balance of any purchase price paid, then, is provided by equity and any seller financing offered.
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