Prices fall to lowest level for six years

According to the latest Private Company Price Index, published quarterly by corporate advisory firm BDO Stoy Hayward, the average entry multiple being paid by private equity firms (PEPI) dipped by 14% in Q2 2008 to 11.1x earnings - the lowest level for six years. The story was similar for trade buyers, with the average entry multiple (PCPI) also dropping by 14% to 11.3x, meaning it remained above private equity for the second successive quarter. Both were again below the equivalent price to earnings ratio of FTSE companies, which declined by 3% to 12.4x.

Looking at sectors, the report suggests that the most significant for private equity buyers over the past twelve months has been healthcare and education, where the PEPI was 17.8x earnings - well above the PCPI but below the FTSE p/e ratio of 22.9x. Indeed, the only sector where the private equity multiple was higher than the public market ratio was financial services, where the PEPI averaged 17.5x over the year, while the FTSE p/e ratio averaged just 11.3x.

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