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Main Conclusions
The Argos Index® climbs back to 9.5x EBITDA
After 3 years of continuous decline, from 11.6x to 8.9x EBITDA, the Argos Index® bounced back in Q3 to 9.5x EBITDA. Multiples are up on both the lower and upper mid-market: multiples of the first and third quartiles are up to respectively 7.2x and 12.3x EBITDA. Multiples climbed also for both investment funds and strategic buyers – although the recovery of multiples paid by private equity funds pulled the market with a strong increase to 10.1x EBITDA.
The Argos Index® was backed by the progressive recovery of the midmarket M&A activity, with Q3 deal volume 7% above their Q3 2023 level, and an upswing in the LBO activity. This rise benefited from improving financing conditions and lower cost of capital, despite the geopolitical and economic risks. Inflation fell quicker than expected (1) and the ECB started lowering interest rates initiating a path to continued rate cuts.
In this context of progressive recovery of both M&A activity and multiples, the market looked less polarized. Extreme multiples represented less than 40% of the Argos Index® sample in Q3 (close to its 5 years average) and transactions below 7x EBITDA dropped to 22% of the sample. The multiples dispersion as measured by the interquartile range also decreased (2).
(1) Eurozone inflation fell below 2% in September on a yearly basis, while the GDP growth rate was 0.4% in Q3 (higher than the consensus forecast) – source: Eurostat.
(2) The interquartile range (IQR), measuring the spread of the middle half of a distribution, decreased from 5.8x to 5.1x EBITDA in Q3, ie. 54% 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 mainly driven by the
recovery of multiples paid by investment funds
Multiples paid by investment funds are up 8.6% to 10.1x EBITDA, fuelled by the recovering LBO and exits activity in 2024, by the decreasing borrowing costs (1) as interest rates are (gradually) lowering, and by rising leverages (2). Private Equity funds continue to target quality assets at higher prices. They represented more than 45% of the Q3 deals above €250m and 57% of the deals at a multiple above 15x EBITDA (almost all secondaries).
Multiples paid by strategic buyers were slighlty up at 8.8x EBITDA in Q3, in line with public equity markets rebound (3). Large corporates continue to look for transformative acquisitions and lower-priced opportunities. They represented more than 60% of the deals at a multiple below 7x EBITDA.
The gap between multiples paid by investment funds and. strategic buyers is widening to 1.3x EBITDA. It confirms the structural change after the Covid crisis. While strategic buyers pay traditionaly more than private equity funds – on average 0.2x EBITDA more between 2004 and 2020 – it is the opposite since 2021. Private Equity funds paid on average 0.9x EBITDA more than strategic buyers, fuelled by the availability of capital (ie. dry powder), low cost of debt, progressive return to availability of leverage at the higher end of the market, and by the higher qualited assets targeted.
(1) Funding costs have declined by 1 percentage point for the average European LBO borrower, according to Pitchbook (in the FT, 01.10.2024)
(2) The percentage of deals with debt equivalent to 6-7x EBITDA has almost doubled since 2022 (ibid)
Enterprise value / historical EBITDA
Source : Argos Index© mid-market / Epsilon Research
Decreasing proportion of transactions
at extreme multiples
39% of the transactions in Q3 2024 are at extreme multiples below 7x or above 15x EBITDA, a clear decrease since last quarter. The proportion of transactions at multiples above 20x EBITDA is back up, with stabilized number of multiples above 15x.
Share of transactions at extreme multiples (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 below 7x EBITDA account for 22% of analysed transactions, a strong decrease since Q2 as the M&A market activity and multiples recover.
Share of transactions at multiples 15x EBITDA Argos Index® sample
The M&A volume activity confirms its recovery,
led by the LBO market
The Q3 (estimated) M&A deal volume is slightly down vs. Q2, but the trend is still upward as Q2 activity was higher than initially estimated. This confirms the progressive recovery on the mid-market. The activity for the first 3 quarters of 2024 is up 8% in volume at around 200 deals per quarter (and 11% in disclosed value) vs. the same period last year, largely driven by the lower end of the market (deals below 150M€).
The market sentiment improves as inflation has quickly dropped to target levels and the ECB has started to lower interest rates. The mid-market recovery is backed by the global M&A market rebound (1) and public equity market rally. It is however a slow process as major political uncertainties (Ukraine war, Middle East conflicts, US elections) and weak economic growth still hang over the eurozone market.
The activity was supported by the quicker recovery of the LBO mid-market. For the first 3 quarters of 2024, the number of transactions is up 30% and disclosed value up 80% vs. 2023, as private equity funds are first beneficiaries of decreasing interest rates and leverage costs. The share of LBOs thus continues to increase to 17% of the M&A market (in number of deals) in Q2/Q3, up from 15% in 2023.
(1) Global M&A activity was up 17% to $2.3tn in 3Q 2024, according to LSEG in the FT, 27.09.2024
Eurozone mid-market activity (€15–500m) in volume (# deals) and value
Source : Argos Index© mid-market / Epsilon Research
Eurozone Mid-market - Number of deals
Source : Epsilon Research / MarketIQ
Investment funds activity continued to recover. Their share (1) in the Q2/Q3 mid-market M&A increased to 17% in number of deals and 32% in disclosed value.
(1) Does not include build-ups
Share of LBO in Eurozone Mid-market M&A
Source : Epsilon Research / MarketIQ
