US deal multiples smash pre-crisis record

Sponsors in the US are looking for higher-quality targets in preparation for a potential downturn, according to a report by advisory firm Murray Devine.

US private equity deal multiples have risen to new heights amid concerns of an impending downturn, according to a report by valuation advisory firm Murray Devine.

The median US deal multiple hit an unprecedented 12.9x EBITDA in 2017, according to the firm’s 2018 Private Equity Valuations Report, far in excess of the previous high of 10x EBITDA in 2006.

High prices have seen deal volumes continue to fall; US private equity sponsors invested just $525.4 billion across 3,888 deals last year, the report noted. This compares with $591 billion of spending across 4,254 in 2016 and marks the lowest level of activity since 2013.

“The divergence in which deal volume retracts as valuations ascend typically reflects a flight to quality that can occur during the later stages of a market cycle,” said Daniel DiDomenico, senior managing director at Murray Devine and report author.