UK multiples on the rise

Price multiples paid by buyout firms for British private companies jumped to a 12.2x average in 2010, up from 11.6x in 2009, according to accountancy and advisory firm BDO’s Private Company Price Index.

Trade buyers in comparison were more frugal, paying an average 11.7x price multiple for private companies in 2010, up from 11.2x in 2009.

A shortage of good deals alongside more “traditional transactions” in place of distressed deals has driven the trend, noted BDO. “Higher multiples are being paid for these more traditional transactions and this has led to a general increase in market optimism.”

The increase in multiples is even more pronounced across the greater European region, according to the latest Centre for Managament Buy-out Research,  which is sponsored by Barclays Private Equity and Ernst & Young and published by PEI. Private equity firms paid an average 15.9x price multiple for European companies, up significantly from a 10.5x average in 2009 and moving towards the 17.6x average of 2007, according to CMBOR’s stats.

The uptick in UK multiples is expected to continue, according to BDO’s annual Private Equity Survey.

Roughly a third of GPs (30 percent) expect price multiples for UK private companies to increase by 10 to 20 percent next year, while 62 percent of GPs reckon that will come true within two years.