Rising from the Dip: The Recovery of EBITDA Multiples in 2024

May 11, 2024

EBITDA multiples are a crucial indicator of a company’s market value in relation to its earnings in the field of business valuation. The “DealStats Value Index 2024 Q2” provides a detailed understanding of these multiples, examining their fluctuations and recovery patterns over recent years. This article explores these trends, analyzing the economic and sector-specific factors that influence them, and what they indicate about the present marketplace for buying and selling businesses.

The EBITDA Landscape: Trends and Recovery

A Volatile Journey

Since reaching a peak of 5.0x in the third quarter of 2018, EBITDA multiples experienced significant fluctuations, bottoming out at 2.9x by the second quarter of 2022. This decline was influenced by global economic uncertainties, including the impacts of the COVID-19 pandemic. However, a recovery trend is evident, with multiples climbing back to 4.3x by the first quarter of 2024, as shown in Exhibit 1A.

ebitda growth

Driving Forces Behind the Recovery

Economic Stability: Post-pandemic economic stabilization has restored confidence among investors, reflected in the rising EBITDA multiples.

Sector Dynamics: Different industries have recovered at varying rates, influenced by their resilience and adaptability during the pandemic. The technology and digital sectors, for example, have shown strong recovery due to increased reliance on digital services.

Sector-Specific EBITDA Multiples

Highs and Lows Across Industries

The Information sector showcased exceptional growth, with current multiples significantly exceeding the all-time median, detailed in Exhibit 3. In contrast, traditional sectors like Accommodation and Food Services struggled to rebound, as indicated by their consistently low multiples.

median selling price

Stability in Utilities

The Utilities sector, known for its stable earnings and predictable cash flows, maintained high EBITDA multiples, demonstrating its resilience amidst economic fluctuations.

Stability in Net Sales Multiples

Market Equilibrium

Net sales multiples have shown remarkable stability, maintaining at 0.54x as of early 2024, as reported in Exhibit 1B. This stability suggests a consensus among market participants about the value generated per dollar of sales across various industries.

Public vs. Private Buyer Dynamics

companies tend to pay higher multiples, attributed to their greater resources and potential for achieving synergies post-acquisition, as evidenced by the data in Exhibits 14 and 15.

Analyzing Profit Margins

Indicator of Operational Efficiency

Rising EBITDA margins, stabilizing at 15% in early 2024 as shown in Exhibit 2, point to improved operational efficiencies and effective cost management across businesses.

Profitability Across Sectors

While the Finance and Insurance sector boasts high profitability due to its efficient operations, sectors with lower profit margins, such as Information, may be investing heavily in growth or facing competitive pricing pressures.

Insights into the Business Marketplace

Trends in Selling Prices

An increase in the median selling price to $407,500 in 2024 reflects a healthy appetite for business acquisitions, driven by optimistic market outlooks and robust investor confidence, as illustrated in Exhibit 18A.

Time to Close Deals

The days on the market for businesses have slightly increased to 211 days by the second half of 2023, suggesting a balanced market where transactions are neither rushed nor delayed, as detailed in Exhibit 20.

This summary analysis of the most recent DealStats Value Index 2024 Q2 reveals a marketplace in recovery, characterized by rising EBITDA multiples and stable selling conditions. Investors and business owners looking to navigate this landscape will find that timing, sector selection, and understanding market dynamics are crucial to capitalizing on opportunities in 2024. This analysis not only highlights the current state of business valuations but also provides strategic insights for those looking to buy or sell businesses in a recovering economic environment.

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