Hunt for growth drives deal volume and pricing

Competition for quality emerging between trade and private equity buyers

BDO LLP, the accountants and business advisers, today publishes the latest results from its Private Companies Price Index (PCPI) and Private Equity Price Index (PEPI) for Q2 2012.

Private Companies

• The total number of trade acquisitions for Q2 2012 is up 17.3% on Q2 2011 from 371 to 435
• Over the last 12 months (to Q2 2012) private company deal volumes were up 21.2% on the previous 12 month period from 1,492 to 1,809
• Trade buyers paid an average price/earnings (p/e) multiple of 13.3 times in the second quarter (the highest multiple since Q3 2007) compared to 11.5 times in Q1 2012 and 10.8 times in Q2 2011
• The average multiple paid by trade buyers over the past 12 months (to Q2 2012) was 11.9 times compared to 10.7 times in the previous 12 month period

Peter Hemington, M&A Partner, BDO LLP commented: “We are seeing relative stability in the volume of private company deals and deal pricing has been steadily rising. As organic growth remains challenging in difficult economic conditions, companies that have conserved cash during the downturn are increasingly focusing on acquisitive growth in order to satisfy shareholders demands for higher returns on capital. With a finite pool of high quality targets there is significant upward pressure on valuation metrics."

Private Equity

• The total number of PE acquisitions was up 26.5% year on year from 68 to 86 
• Over the last 12 months (to Q2 2012) private equity deal volumes were  up 11.6% on the previous 12 month period from 327 to 365
• Private equity buyers paid an average p/e multiple in the quarter of 12.0 times up from 10.8 times during Q2 2011. The average multiple paid by private equity buyers over the past 12 months was 13.9 times compared to 11.3 times for the previous 12 month period

Peter Hemington, M&A Partner, BDO LLP commented: “Private Equity houses have been under intense pressure to invest funds raised since 2007 and are now facing the additional pressure of increased competition from private companies. With a scarcity of suitable high growth companies available in the current economic climate for private equity to back, and the increasing competition arising from trade buyers returning to acquisitions, pricing has been pushed up considerably over the last 12 months.  

“Despite continued economic uncertainty, the deal environment appears to be more resilient as companies increasingly look to make quality acquisitions to drive growth and, in certain sectors, in response to shifting technological trends.  Pricing has steadily increased for private company transactions and remained relatively high for private equity deals compared to the previous four years. This is in marked contrast to the FTSE Non-Financials index where pricing has fallen over the comparable period and is more indicative of the wider economic backdrop. This also reflects that the deals that are completing are for higher quality companies.”

Historic comparatives

 - Ends –

 Notes to editors

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