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Main Conclusions
The Argos Index® decreased slightly to 8.9x EBITDA
The Argos Index® is slightly down at 8.9x EBITDA in Q1 2024, continuing a 2.5 years decline since its Q2 2021 peak. It is its lowest level since 2017, close to its 20 years average. The Argos Index® was driven this quarter by the decreasing prices paid by investment funds (down to 9.1x EBITDA), that gradually converge with those paid by strategic buyers (stable at 8.7x EBITDA).
The downward pressure on prices is also highlighted by the drop in multiples on the upper mid-market (down by 4x EBITDA since Q1 2023), that converge with lower mid-market multiples. The proportion of multiples > 15x EBITDA is stable at 13% of the Argos Index® sample but with no deal > 20x, as Tech & Healthcare deals represent only 30% of the sample, a record low. Besides, sellers’ prices continue to adjust, with a record proportion of deals < 7x EBITDA.
The M&A mid-market activity is stable this quarter, in line with the low quarterly volume of the last two years, but contrasts with the global M&A market rebound (1). As financial conditions are shifting, this apparent stability hides conflicting trends: (i) delayed effects of the adverse 2023 macro-economic conditions, with record high interest-rates, low growth and geopolitical risks, still weight on both activity and prices; (ii) receding uncertainty on rates, as inflation in the euro zone has fallen significantly from its 2022 peak, pushes for a gradual recovery (2).
In this context, the M&A mid-market has continued to show remarkable resilience, backed by the imperative for PE funds to renew their investment portfolio (3) and corporates to adapt and transform their business models.
(1) The European M&A market activity was up 60% in Q1 2024 vs. 2023 (source: LSEG / FT, 28.03.2024)
(2) Euro Zone GDP increased by 0.3% in Q1 2024 (+0.1% in Q4 2023), with inflation down to 2.4% in March (Eurostat).
(3) PE groups globally have a record 28,000 unsold companies worth more than $3.2tn, according to the lasted Bain Global Private Equity Report 2024
Source : Argos Index© mid-market / Epsilon Research
The Argos Index® is driven by the decrease
of multiples paid by investment funds
Multiples paid by investment funds were down 3% to 9.1x EBITDA and came closer to multiples paid by strategic buyers, as the high-rate environment drives up their borrowing cost. However they continued to deploy capital this quarter and increased their share of the M&A market: they still benefit from record dry powder and continue to make selective acquisitions of quality assets. Investment funds represented almost half of the deals at multiples > 15x EBITDA in the Q1 Index sample.
Multiples paid by strategic buyers were stable at 8.7x EBITDA in Q1, while public equity markets continued to recover (1), driven by decelerating inflation, expected interest rates cuts by the ECB and prospects of a soft-landing scenario. Large corporates continue to look for transformative acquisitions and lower-priced opportunities: strategic buyers represented 65% of the transactions < 7x EBITDA.
(1) The EURO STOXX® TMI Small is up 3.4% in Q1 2024.
Enterprise value / historical EBITDA
Source : Argos Index© mid-market / Epsilon Research
Record proportion of transactions below 7x EBITDA
47% of the transactions in Q1 2024 are at extreme multiples < 7x or > 15x EBITDA, one of the highest level since 2018. The proportion of transactions at multiples > 15x EBITDA is stable at a low level, with no 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 34% of analysed transactions, a record high level that highlights downward pressure on prices.
Share of transactions at multiples <7x and >15x EBITDA Argos Index® sample
M&A activity stable in Q1, after a limited
fall in 2022 / 2023
The Euro zone M&A deal volume was stable this quarter (c.150 deals), with disclosed value down 8%. The activity was driven by the gradual recovery of the LBO mid-market (1) after the rebound in Q4 2023: the activity was up 5% in volume vs. Q4 and 17% in value. The share of LBOs increased to 18% of the M&A market (in number of deals), back from 14% in mid-2023, but still below its 20%+ level in 2021.
The overall mid-market M&A activity stability contrasts with the rebound of the global M&A market (2), backed by the stabilisation of interest rates (though at a high level), as inflation has fallen significantly from its 2022 peak. However, this recovery is still hindered by economic volatility, geopolitical risks, and delays in interest rates cuts anticipated by the financial markets.
The global large cap M&A market recovers after two years of strong decline. The mid-market is less volatile: more stable under adverse economic conditions, with a limited activity fall in 2022/23, and a more restrained rebound as conditions improve. This is particularly true for the lower-mid-market, which remained broadly stable in Europe.
(1)Source: Epsilon Research / MarketIQ
(2) Global M&A activity was up 30%, with deals > $10bn more than doubled in Q1 2024 (vs. 2023), according to LSEG in the FT, 28.03.2024
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 was up in Q1, and their share (1) in Q1 mid-market M&A increased to 18% in number of deals and a record 32% in value.
(1) Does not include build-ups
Share of LBO in Eurozone Mid-market M&A
Source : Epsilon Research / MarketIQ
