The Argos Index® mid-market

2nd quarter 2020

Principal conclusions

  • The Argos Index® stabilised at 9.2x EBITDA against a background of low transaction volumes.
  • The volume of M&A activity declined sharply in the second quarter, by 40% in volume and 60% in value terms compared with the first quarter of 2020 and the second quarter of 2019.
  • The multiples paid by investment funds (9.3x) and strategic buyers (8.9x) converged.
  • Germany set a new record for market share of mid-cap M&A transactions in the eurozone.
01

The Argos Index® stabilised at 9.2x EBITDA against a background of low transaction volumes

  • After declining significantly in the first quarter of 2020, the Argos Index® stabilised at 9.2x EBITDA. In other words, multiples did not continue to decline during the quarter; rather, the softer market conditions were expressed in declining transaction volumes.
  • The Argos Index®’s apparent stability during the quarter belied an increasing polarisation between transactions in sectors that the crisis has spared (software, healthcare, etc.) and in those it has impacted more directly. The latter have been the target of opportunistic acquisitions at lower valuations. The Argos Index® is the median of valuation multiples and remained stable, but the standard deviation increased.
  • That the index remained stable despite a sharp decline in business activity in European economies also reflects:
    •  financial terms that are still very accommodative owing to the ECB’s rapid and massive intervention;
    • the significant cash hoard held by large groups and investment funds alike, which is available for opportunistic acquisitions.
02

The multiples paid by investment funds (9.3x) and strategic buyers (8.9x) converged

  • The multiples paid by buyout capital funds rose slightly to 9.3x EBITDA amid a transaction volume that was down 35% in the second quarter.
  • Still flush with cash, investment funds continued to invest in resilient sectors, whose valuations have not been impacted by the crisis.
  • Prices paid by strategic buyers continued to declne, following on from the first quarter, to 8.9x EBITDA. Large, listed companies remained active in the mid-market, representing more than 70% of strategic buyers during the first half, to the detriment of small or unlisted groups.
  • Strategic buyers were more active in opportunistic acquisitions, at reduced valuations.
Graph 2 – Enterprise value / historical EBITDA
Source: Mid-market Argos Index® / Epsilon Research
03

The percentage of high-multiple transactions is stabilising

Acquisitions at multiples in excess of 15x EBITDA still represented 15% of transactions in the first half of 2020, indicating that prices have been particularly resilient for thriving companies, such as those in sectors that are shielded from the impact of Covid-19 (technology, healthcare, etc.).

Graph 3 – Percentage of transactions at multiples > 15x EBITDA
Source: Mid-market Argos Index® / Epsilon Research
04

The spread between the multiples of listed companies and the transaction multiples paid by strategic buyers narrowed

The multiples of listed companies increased by 9% to 7.4x(1) in the second quarter, benefiting from the rapid recovery in equity markets(2). This reduced the record-high, first-quarter spread between the multiples of listed companies and the transaction multiples paid by strategic buyers.

(1) EV/TLM EBITDA was 7.4x for listed, eurozone mid-market companies (source: smallcaps.infrontanalytics.com)

(2) The EuroStoxx® TMI Small index regained 16.5% between 1 April and 30 June 2020.

Graph 4 – Comparison of listed (1) and unlisted mid-market multiples (paid by strategic buyers)
Source: Mid-market Argos Index® / Epsilon Research / InFront Analytics
05

Mid-market M&A activity in Europe declined sharply in the first half of 2020

  • The Covid-19 crisis and the lockdown of a large portion of the European population caused mid-market M&A activity in the eurozone to fall by 40% in volume and 60% in value terms in the second quarter (compared both with the first quarter of 2020 and the second quarter of 2019).
  • But M&A activity did not come to a complete standstill. More than 150 transactions were announced during the quarter, spread evenly over April, May and June.
  • In this context, the German market was more active than the rest of the eurozone, and its weighting increased with the Covid-19 crisis to 31% of transactions in H1 2020 (see Graph 6 below).
Graph 5 – Eurozone mid-market activity (€15-500 million) in volume, by segment
Source: Epsilon Research / Market IQ
06

Germany’s weighting increased among acquisitions of SMEs in the eurozone

  • Germany’s weighting has increased sharply over the past six months: 31% of eurozone transactions took place in Germany. This proportion seems to be rising with the Covid-19 crisis.
  • France’s share is rising slightly and represented 18% of mid-market transactions in the eurozone. There was still much less activity in this segment in France than in Germany, because SMEs account for a small portion of France’s economy.
  • The eurozone’s south was harder hit by the pandemic, and its market share diminished. Italy, Spain and Portugal each represented less than 10% of mid-market transactions in the first half.
Graph 6 – Mid-market activity in the principal eurozone countries
Source: Epsilon Research / Market IQ

Newsletter subscription

* required fields