Conference attendees consisted of private equity investors, financiers who invest in mezzanine debt, asset-based lenders, senior bank lenders, and sponsors who coordinate financing transactions. About 200 professionals attended, coming from all over the United States, Canada, and Europe.
Investors looking to sell or buy a business today face a changing environment as it relates to financing and structuring their deals. The lack of available credit has resulted in more expensive financing compared to only a year ago (according to speakers at the conference). The additional borrowing costs, lower revenue, and earnings expectations have contributed to much lower deal prices.
Consistently, panelists said that in the current marketplace, valuation is the core activity where deal making starts and ends. Now more than ever, it is important that valuations be completed early in the deal making process. "Sellers must beware the new paradigm in business valuation: there's a much greater focus on management and predictability of the future, values are much lower than a year ago" said D. Scott Lutzke, Centerfield Capital Partners, Indianapolis, Indiana.
In the recent past, it was common to see deal values at 8 to 10 times earnings before interest, taxes, depreciation, and amortization (EBITDA). The general consensus of the conference attendees would suggest that current values are closer to 4 to 6 times EBITDA (Note: each business and industry has its own unique factors that will determine if a deal will fall within this range).
Contact me if you would like more information on the current trends in transactions and business valuations.