Over the past two years, business sales prices have risen significantly. In particular, businesses in the Construction & Installation and IT & Online sectors have become significantly more expensive with average increases of up to 9 percent.
This is one of the results of the Brookz Takeover Barometer, the periodic research by takeover platform Brookz on figures and trends in the takeover market. The survey was carried out among 265 merger & acquisition advisers (approx. 1,200 advisers) who together represent more than 90% of the SME takeover market (businesses with revenues between 0.5 and 25 million euros).
Construction companies increased the most
The largest price increase over the past two years was measured for businesses in the Construction & Installation Technology sector. A construction business became 9.2% more expensive on average from fall 2016, followed by businesses in the IT & Online sector (+5.9%), Automotive, Transport & Logistics (+5.5%) and Industry & Manufacturing (+4.9). In the middle are businesses in Business Services (+4.1%) and Agri & Food (3.7%). Retail is the only sector where businesses have become cheaper over the past two years (-1.4%).
IT & Online most expensive
The highest prices are paid for businesses in the IT & Online sector. On average, this sector pays 6.25 times the gross profit for a business. Other sectors with high selling prices are Healthcare & Pharmaceuticals (6.05 times gross profit) and Wholesale (5.65 times gross profit). Also in this ranking, businesses in the Retail sector are at the bottom with an average price of 3.6 times gross profit.
Supply dries up
In the second half of 2018, the average number of transactions per advisory firm increased by 7% compared to the first six months of 2018. Remarkably, this increase is almost entirely driven by the increase in the number of assisted purchase transactions. According to Floyd Plettenberg, partner at Brookz and responsible for the Takeover Barometer, this is a logical consequence of the current market situation. "It is a seller's market: the number of businesses on offer is limited. For a well-run SME business, there are sometimes as many as twenty buyers lining up. Businesses looking to grow through acquisitions are therefore increasingly turning to an M&A adviser to help them find a suitable acquisition candidate and get their foot in the door more easily."
EBITDA Multiples by Sector — H2 2018
| Sector |
Multiple H2 2018 |
Adjustment compared to H1 2018 |
| IT & Online |
6,25 |
+0,05 |
| Healthcare & Pharmacy |
6,05 |
+0,05 |
| Wholesale |
5,65 |
— |
| Agri & Food |
5,6 |
+0,05 |
| Industry & Manufacturing |
5,35 |
+0,05 |
| Business services |
5,05 |
+0,05 |
| Media, Advertising & Communications |
4,65 |
— |
| Construction & Installation Engineering |
4,15 |
+0,05 |
| Hospitality, Tourism & Recreation |
4,0 |
— |
| Automotive, Transportation & Logistics |
3,85 |
+0,05 |
| Retail |
3,60 |
−0,05 |
| Average |
4,95 |
— |
Survey date: end of H2-2018. Adjustment is relative to the multiple from the H1-2018 Barometer. Average as stated in the report. Source: Brookz Takeover Barometer H2-2018 (February 2019).
Summary
- In H2-2018, 361 purchase transactions (+14%) and 432 sale transactions (+1%) were facilitated; the average number of transactions per office rose 7% compared to H1-2018, mainly because buyers were more likely to engage an adviser.
- Automotive, Transportation & Logistics showed the strongest sector growth: from 7% to 10% of all transactions.
- Retail was the only sector with a declining EBITDA multiple (from 3.65 to 3.60) and remained the lowest-valued sector.
- Over the past two years (H2 2016 through H2 2018), the average EBITDA multiple rose by 4.2%; Construction & Installation Technology saw the strongest increase (+9.2%), followed by IT & Online (+5.9%).
- The share of strategic buyers rose to 57% of all transactions (up from 51% in H1-2017); investment firms were the buyers in approximately 19% of cases, either alone or in conjunction with an MBI or MBO candidate.
- Bank loans (42%) and equity (28%) remain the primary sources of financing; subordinated loans are used in 1 out of every 10 transactions.
- Whereas before the financial crisis banks sometimes financed up to 90% of an acquisition price, that figure is now capped at 50%—the remainder comes from the buyer’s own funds and alternative financiers.
- Sentiment remained positive but moderated: the rating for H2-2018 was 7.6, with an expectation of 7.5 for H1-2019; only 13% expect further growth, compared to 38% six months earlier.
