Argos Index®

The mid-market reference

Argos Index® 4th Quarter 2023


Main Conclusions

The Argos Index® has stabilized at 9.0x EBITDA

After the Q3 2023 decrease, the Argos Index® has stabilized at 9.0x EBITDA in Q4, close to its 20 years average.

Prices are still convergent between market segments. Both the upper and lower mid-market multiples are stable vs. Q3. Their difference is at a low 1.5x EBITDA in Q4, while the proportion of multiples >15x EBITDA dropped to 12% of the index sample. Prices paid by investment funds are unchanged at 9.4x EBITDA though prices paid by strategic buyers continued to decrease to 8.7x EBITDA.

The M&A activity was heavily impacted by the adverse 2023 macro-economic environment of inflation, interest rates hikes, slowing growth, geopolitical tensions. Mid-market activity was down 10% in volume and 25% in value in 2023, as the LBO segment dropped by 12% in volume and 30% in value. Sellers’ prices have gradually adjusted to this environment, as shown in the 10% price decline in 2023, and the high proportion of multiples below 7x EBITDA.

However, both transaction multiples and M&A activity have stabilized in Q4, as financial conditions may be shifting. With decelerating inflation and dropping long-term interest rates, equity markets rebounded quickly. Investment funds volume activity was up 20% this quarter, backed by record levels of dry powder.

Besides, the resilience of the M&A activity and prices is linked to the imperative for corporates to adapt and transform their business models, make transformative acquisitions, as they face technological disruption, climate change and demographic shifts.

Argos Index® mid-market
Median EV/EBITDA multiple on a six-month rolling basis

Source: Mid-market Argos Index© / Epsilon Research

Multiples paid by strategic buyers continue to decrease, as those paid by investment funds stabilize.

Multiples paid by strategic buyers decreased by 4% at 8.7x EBITDA in Q4, although public equity markets were back up this quarter(1), driven by decelerating inflation and expected early interest rates cuts by the ECB. Large corporates continue to look for transformative acquisitions and lower-priced opportunities as they keep a high share of the M&A market in Q4 (85% in volume).

Multiples paid by investment funds were stable 9.4x EBITDA, despite the higher-rate environment that drives up their borrowing cost. They remained resilient and opportunisticaly deployed more capital this quarter. They still benefit from record dry powder(2) and continue to make selective acquisitions of quality assets (at higher prices). Investment funds represented 30% of the deals at multiples > 15x EBITDA in the Q4 Index sample, but only 20% of the deals < 7x EBITDA.

(1) The EURO STOXX® TMI Small is up 7.9% in Q4 2023.
(2) PE funds have a record $2.59tn of “unspent investor cash” in January 2024 – Source: S&P Market Intelligence in the FT, 03.01.2024

Enterprise value / historical EBITDA

 Source: Mid-market Argos Index© / Epsilon Research

High proportion of transactions below 7x EBITDA

40% of the transactions in Q4 2023 are at extreme multiples < 7x or > 15x EBITDA, down from last quarter but still at a high level. However, the proportion of transactions at multiples > 15x EBITDA continues to decrease, as prices are both falling and converging.

Share of transactions at extreme multiples (<7x and >15x EBITDA)

Source: Mid-market Argos Index© / Epsilon Research

Share of transactions at multiples >15x EBITDA Argos Index® sample

Transactions at multiples < 7x EBITDA account for 28% of analysed transactions, a very high level that highlights downward pressure on prices.

Share of transactions at multiples <7x and >15x EBITDA Argos Index® sample

M&A activity resilience in Q4, though in a downward market

Euro zone M&A activity in Q4 is back to its Q2 levels, in both volume (c.150 deals) and value (€4.5bn disclosed), although the annual trend is still downward: by 10% in volume and 25% in value vs. 2022. The LBO mid-market shows the same trend(1): a rebound in Q4 (number of deals up 20% vs. Q3) in a declining 2023 market, down 12% in volume, 30% in value.

The 2023 M&A activity was heavily impacted by the adverse macro-economic environment: inflation, economic volatility, geopolitical tensions, increased regulatory scrutiny, supply chain disruptions, as well as interest rates hikes that quickly increased the cost of both debt and capital. In 2023 the global M&A market dropped by 17% below $3tn(2), its lowest level in 10 years, while Europe showed the sharpest drop, down 28% annually.

The year-end M&A market resilience was linked to the improvement in financial markets, as the monetary tightening cycle seem to come to an end and markets expecting rates cuts in 2024. Although risks remain of persistent inflation, fears of recessions, and ongoing geopolitical risks.

(1)Source: Epsilon Research / MarketIQ
(2)Global M&A activity was down 17% to $2.87tn in 2023, with c. 53.500 deals, according to Refinitiv (LSEG) in the FT, 29.12.2023 / Les Echos, 02.01.2024

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 Q4, and their share(1) in Q4 mid-market M&A increased to 15% in number of deals – still a low level – and 23% in value.

Share of LBO in Eurozone Mid-market M&A

Source : Epsilon Research / MarketIQ

Argos Index® 4th Quarter 2023

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Jean-Pierre Di Benedetto - Argos Wityu

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