Thriving in Turbulence? M&A Valuations in the Age of High Interest Rates

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In this comprehensive report, we delve into the valuation dynamics of 18 diverse industries over the last six years, specifically focusing on the periods pre-pandemic, during the pandemic, and post-pandemic (2018 to October 31, 2023).

Overview

Our analysis employs two key valuation multiples: Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA) and Enterprise Value to Revenue (EV/Revenue). The goal is to provide a nuanced understanding of how industries have reacted and evolved in terms of deal multiples during these distinct economic phases.

EV/EBITDA and EV/Revenue Report

Our report covers 18 diverse industries, capturing the nuances of their valuation dynamics. The industries are as follows:

 

  • Aerospace & Defense
  • Automobile & Components
  • Banks
  • Biotech & Pharma
  • Chemicals
  • Consumer Products & Services
  • Containers & Packaging
  • Energy & Power
  • Healthcare & Equipment
  • Insurances
  • IT Consulting & Services
  • Machinery
  • Media & Entertainment
  • Oil & Gas
  • Retail
  • Software
  • Steel
  • Telecommunications

 

The analysis includes both median and mean deal multiples based on EV/EBITDA and EV/Revenue. The following charts and insights aim to elucidate how these industries responded to the challenges and opportunities presented in the pre-pandemic, during-pandemic, and post-pandemic periods.




Median Enterprise Value to EBITDA Multiples

by Industry – Overview




Median Enterprise Value to Revenue Multiples

by Industry – Overview




Mean Enterprise Value to EBITDA Multiples

by Industry – Overview




Mean Enterprise Value to Revenue Multiples

by Industry – Overview

As industries navigated through the evolving economic landscape of the last six years, the choice of valuation metric played a pivotal role in shaping deal multiples. This report aims to provide valuable insights for industry stakeholders, M&A professionals, and investors seeking a nuanced understanding of industry-specific valuation trends.

Valuation Metrics Overview

1. EV/EBITDA: Unveiling Profitability Dynamics

Definition: EV/EBITDA represents the ratio of a company’s Enterprise Value to its Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a metric emphasizing profitability and operating efficiency.

 

 

Enterprise Value-to-EBITDA (EV/EBITDA):

EV/EBIDTA =

Enterprise Value

EBITDA

Where:

 

  • Enterprise Value is the total value of a company’s equity and debt.
  • EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization.

 

Applicability:

 

  • Often preferred for mature companies with established profitability.
  • Provides insights into a company’s operational performance, excluding non-operating expenses.

2. EV/Revenue: Unmasking Revenue-Centric Insights

Definition: EV/Revenue signifies the ratio of Enterprise Value to a company’s Revenue. This metric focuses on a company’s ability to generate revenue, irrespective of profitability.

 

 

Enterprise Value-to-Revenue (EV/R):

EV/R =

Enterprise Value

Revenue

Where:

 

  • Enterprise Value is the total value of a company’s equity and debt.
  • Revenue is the total income generated by the company from its primary operations.

Applicability:

 

  • Particularly relevant for high-growth or early-stage companies.
  • Emphasizes top-line growth and market presence.
  • Industry-Specific Analysis
  • In situations where a company is going through a downturn and is valued based on Forward Multiples (see next section).

Forward EV/Revenue and Forward EV/EBIDTA:

Forward EV / Revenue =

Estimated Enterprise Value

Estimated Revenue for the Next Year

Forward EV / EBITDA =

Estimated Enterprise Value

Estimated EBITDA for the Next Year

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