Mid-cap PE valuations back to pre-crisis heights – Argos research

JosУЉ Rojo
24 July 2015

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The median entry multiple paid within the European mid-cap space declined slightly from 8.4x in Q1 to 8.3x in Q2, but remains close to the level last seen in 2007, according to the latest Argos Mid-Market Index.

The report, published jointly by GP Argos Soditic and data service Epsilon Research, surveys the median entry multiples paid by both private equity players and corporates for buyouts in EU-headquartered businesses valued in the €15-500m bracket.

The spending gap between private equity firms and corporate players in the mid-cap space narrowed again following a slight decoupling in the first quarter of the year. Private equity firms paid a median multiple of 8.2x EBITDA in Q2, halting the fall witnessed in Q1. At the time, the median entry multiple for private-equity-backed buyouts was found to have decreased from 8.4x EBITDA in the previous quarter to 7.5x.

Meanwhile, strategic buyers paid a median entry multiple of 8.4x in Q2, against 8.7x in the first three months of 2015. Argos and Epsilon attributed the slight dip to the impact of renewed financial turmoil within the eurozone on the stock and sovereign bond markets.

Although minimal, the drop from Q2's 8.4x to Q2's 8.3x when looking at the mid-cap space as a whole represents the first decrease in the index since Q3 2014. The median entry multiple in the market has hovered around the 8x mark since Q4 2013, when it jumped up from 6.7x to 7.8x. Bar the second half of 2011, this marked the highest median multiple seen in the market since 2007.

Busier Q2 for European mid-cap M&A
According to the index, strategic and private equity buyers in the European mid-market appeared keener to put their dry powder to use in Q2 2015, with dealflow increasing by 9% and aggregate value registering a 14% uptick compared with Q1.

However, looking at data for the first half of 2015 suggests a wider theme of stabilisation, with dealflow on par with the 550 transactions reported in S2 2014 and overall value on the decline. The trend is echoed at both the lower (€15-150m) and upper (€150-500m) end of the mid-cap spectrum, with the latter segment still accounting for 25% of all mid-market transactions.

According to unquote" data, 115 private equity buyouts were recorded in the €15-500m space in Q2. At an average of €120.9m per deal, the transactions represented an estimated total of €13.9bn being deployed by private equity houses.

Notable transactions recorded by unquote" in the European mid-market during Q2 include Dutch belting system manufacturer Ammeraal Beltech, valued at a reported €475m when Gilde divested it to Advent International; and Vacalians, a French campsite operator sold by 21 Partners to Permira for an estimated €400m in May.