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Main Conclusions
The Argos Index® stabilized at 8.9x EBITDA
The Argos Index® has stabilized at 8.9x EBITDA, slightly above its 20 years average. Multiples paid by investment funds rose slightly to 9.3x EBITDA, while multiples paid by strategic buyers remained stable at 8.7x EBITDA.
The Index is backed by the slow recovery of the mid-market M&A activity (+5% volume activity in H1, although on lower value at -12%), as macro-economic conditions are stabilizing, with falling inflation and expectations of ECB reducing interest rates ahead of the Fed. But economic and political uncertainties prevent a full M&A recovery. Financing conditions are still the toughest in a decade and the high cost of capital still weights on valuations.
In this context, prices have stopped converging between the upper and lower segments of the mid-market. The mid-market appears increasingly polarized. Extreme multiples are at their highest level (representing almost half of the Index sample). Transactions below 7x EBITDA are at a record level (31%), highlighting the continued downward pressure on prices, while the proportion of multiples > 15x EBITDA is increasing (at 17%). The dispersion of the multiples, as measured by the interquartile range(1), is high: the middle 50% of the Index sample spreads between 6.4x and 12.2x EBITDA.
(1) The interquartile range (IQR), measuring the spread of the middle half of a distribution, is at 5.8x EBITDA in Q2, ie. 65% of the median.
Argos Index® mid-market Median EV/EBITDA multiple on a six-month rolling basis
Source : Argos Index© mid-market / Epsilon Research
The Argos Index® is backed by the small
increase of multiples paid by investment funds
Multiples paid by investment funds are up 2% to 9.3x EBITDA, despite the high-rate environment, as the LBO activity and exits bounce back this semester. Investment funds adapt their stategies to a polarized market. They continue to make selective acquisitions of quality assets at higher prices and make opportunistic acquisitions at a lower price: funds represented 60% of the deals at multiples > 15x EBITDA in the Q2 Index sample (with 3/4 in tech & healthcare sectors) and 40% of the deals < 7x EBITDA.
Multiples paid by strategic buyers were stable at 8.7x EBITDA in Q2, the same level since Q4 2023, while public equity markets were back to their December 2023 level (1). Large corporates continue to make transformative acquisitions and to look for lower-priced opportunities.
(1) The EURO STOXX® TMI Small is down 3.6% in Q2 2024.
Enterprise value / historical EBITDA
Source : Argos Index© mid-market / Epsilon Research
Record proportion of transactions at extreme
multiples
48% of the transactions in Q2 2024 are at extreme multiples < 7x or > 15x EBITDA, the highest level since 2018 as the M&A mid-market is getting more polarized. The proportion of transactions at multiples > 15x EBITDA is back up, with limited number of multiples > 20x.
Share of transactions at extreme multiples (<7x and >15x EBITDA)
Source : Argos Index© mid-market / Epsilon Research
Share of transactions at multiples >15x EBITDA Argos Index® sample
Source : Argos Index© mid-market / Epsilon Research
Transactions at multiples < 7x EBITDA account for 31% of analysed transactions, a record high level that highlights downward pressure on prices in the lower end of the market.
Share of transactions at multiples <7x and >15x EBITDA Argos Index® sample
The M&A volume activity is slowly recovering
The Q2 M&A deal volume (estimated) is down to its Q4 2023 level. But the trend is still upward over the semester (+5% vs. S2 2023), driven by the lower end of the market (deals below 150M€).
The mid-market is slowly recovering on the back of the global M&A market rebound(1), fuelled by the fall of inflation and expectations of decreasing interest rates, as the macro-economic environment has begun to stabilize. However, investors are still cautious as major economic and political uncertainties hang over the market.
The activity was supported by the gradual recovery of the LBO mid-market: it was up this semester by 16% in volume and 28% in value vs. S2 2023. The share of LBOs increased to 17% of the M&A market (in number of deals), up from 15% in 2023. Exits(2) are also back up (+18% in volume, +5% in value) as investment funds sit on a record number of assets that they must sell down.
(1) Global M&A activity was up 22% to $1.5tn in S1 2024, with +43% in Europe, according to LSEG in the FT, 27.06.2024
(2) Source: Epsilon Research / MarketIQ
Eurozone mid-market activity (€15-500m) in volume and value
Source : Argos Index© mid-market / Epsilon Research
Eurozone Mid-market - Number of deals
Source : Epsilon Research / MarketIQ
Investment funds activity continued to slowly recover, and their share(1) in the S1 mid-market M&A increased to 17% in number of deals.
(1) Does not include build-ups
Share of LBO in Eurozone Mid-market M&A
Source : Epsilon Research / MarketIQ
