The Argos Index® mid-market

1st quarter 2021

Principal conclusions

  • The Argos Index® continued to rise, to 11.3x EBITDA
  • The index was driven by investment funds, which paid significantly higher multiples
  • Nearly 16% of transactions closed at multiples in excess of 15x EBITDA
  • Listed companies remained active in the mid-market, encouraged by the steady rise in equity markets
  • Mid-market M&A activity increased in value but not in volume
  • Benelux was the most active eurozone region this quarter in terms of SME acquisitions, surpassing Germany
01

The Argos Index® continued to rise, to 11.3x EBITDA.

The Argos Index® rose to 11.3x EBITDA, a new all-time high.

This quarter, it was driven by the high end of the mid-market (€150-500m in equity) and by investment funds, whose multiples reached a new record.

Progress in vaccination, continued low, long-term interest rates and the unbroken rise in equity markets fueled the outlook for a return to growth in the eurozone, and valuations benefited therefrom.

The high multiples also reflected the composition of the sample, as they did in H2 2020. Nearly 50% of transactions referenced in the Argos Index® in Q1 2021 were in the healthcare and technology sectors, although this percentage was down from the previous quarter.

02

Investment funds paid significantly higher multiples

The multiples paid by investment funds continued to increase significantly, to 12.7x EBITDA, the highest level the Argos Index® has reached since its inception in 2004.

Three factors are driving the increase in multiples: (i) competition from strategic buyers is robust, (ii) private equity investment is continuing its steady rise (also driven by high levels of dry powder), and (iii) the cost of acquisition debt is low (tied to central bank policy).

In Q1 2021, the multiples paid by investment funds were more homogeneous than those paid by strategic buyers, hence, inferring an increase in multiples over all industries; the relative standard deviation for the first group was 25%, vs 40% for the second. The profile of companies acquired by funds was also more homogeneous: high-quality companies, relatively unaffected by the crisis. Strategic buyers were more active in opportunistic acquisitions of lower-valued target companies. The five lowest multiples in the sample, <7.5x EBITDA, were all strategic acquisitions.

Enterprise value / historical EBITDA
Source: Mid-market Argos Index® / Epsilon Research
03

Share of transactions at multiples >15x EBITDA remained high, at around 16%

           

Percentage of transactions at multiples >15x EBITDA Argos Index™ sample
Source: Mid-market Argos Index® / Epsilon Research
04

Listed companies remained active in the mid-market, buoyed by the steady rise in equity markets

Large, listed companies remained active in the mid-market, representing in Q1 2021, as they did in H2 2020, nearly 75% of strategic buyers. They continued to benefit from easy access to low-cost financing, enabling them to carry out opportunistic acquisitions. They also benefited from the continued rise in the equity markets1 and from their own high multiples, which remained high this quarter at 10.1x EBITDA2.

 

1 The EURO STOXX® TMI was up 9.5% in Q1 2021 and more than 50% year-on-year

2 EV/TLM EBITDA was 10.1x for listed, eurozone mid-market companies (source: smallcaps.infrontanalytics.com)

Comparison of listed and unlisted mid-market multiples (paid by strategic buyers)
Source: Mid-market Argos Index© / Epsilon Research / InFront Analytics
05

Mid-market M&A activity increased in value but not in volume

In Q1 2021, mid-market M&A activity rose sharply in (reported) value, by 18% compared with the previous quarter and by 43% compared with Q1 2020. But the number of transactions declined by c. 20% compared with the previous quarter.

M&A activity is regaining momentum but remained concentrated this quarter on large transactions and on the sectors least affected by the Covid-19 crisis.

Eurozone mid-market activity (€15-500m) in volume and value
Eurozone mid-market activity (€15-500m) in volume and value Source: Epsilon Research / Market IQ

 

 

There has been a strong contrast since mid-2020 between the rise in the value of transactions and the decline in their number. Accordingly, the average transaction size rose to a record-high €138m in Q1 2021.

 

Average disclosed transaction size – M&A Eurozone mid-market
06

Benelux was the most active eurozone region this quarter in terms of SME acquisitions, surpassing Germany

The mid-cap M&A market recovered more in northern European countries, where the Covid-19 crisis was less disruptive than in southern Europe.

Note, the countries covered by Argos Wityu (Germany, France, Benelux and Italy) accounted for 65% of eurozone transactions.

Eurozone mid-market deals Evolution of Breakdown by Country – Volume
Source: Epsilon Research / Market IQ

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