Despite the economic downturn caused by the coronavirus epidemic, average valuations of acquired companies around the world increased last year, according to the latest report by the consulting firm Bain & Company. Investors had to pay more than a year earlier for companies from the technology, telecommunications, pharmaceutical, and digital media sectors. On the other hand, the valuations of companies from the retail and energy sectors decreased.
The calculations of Bain & Company experts show that in 2020 the average purchase price of the company was 14 times its EBITDA profit. A year earlier, investors paid an average of 13 times the profit. The reason for the persistence of high valuations in many industries is the high supply of capital. This is due to government stimulus packages, long-lasting low-interest rates, an increase in household savings, as well as record-high funds for investments gathered by private equity funds.
“It was a year of great uncertainty and turbulence, but also of great surprises. The increase in the average valuations of the acquired companies in many sectors is certainly a surprise for many market participants,” Jacek Poświata, Managing Partner of Bain & Company, said.
Last year did not look good. In the first months of the pandemic, the mergers and acquisitions market actually froze. However, in the second half of 2020, investors returned to the market. As a result, in the third and fourth quarters, the total value of transactions worldwide increased by more than 30 percent. According to a global survey conducted by Bain & Company among 300 market participants, this positive trend is likely to continue in the coming months – around half of respondents expect increased market activity in 2021.