The Argos Index® mid-market

First quarter 2020

Principal conclusions

  • Significant drop in the Argos Index® to 9.3x EBITDA, beginning in January 2020 and intensifying in March
  • Investment funds remained more prudent (8.8x) than trade buyers (10.0x)y
  • Fewer transactions where high multiples of >15x EBITDA are paid
  • Rebound in European mid-market M&A volume activity in Q1 2020… before an obvious drop to be observed in Q2 2020
  • Germany most active Euro zone region in terms of SME deal involvement, followed by Benelux and France

Significant drop in the Argos Index® to 9.3x EBITDA

Prices paid in the mid-market during the first quarter mainly reflected anticipation of a turnaround in the economy at the beginning of the year. As the Argos Index® is calculated on a rolling 6-month basis, the impact of the Covid-19 crisis was limited at this stage (although it is worth remembering that disruptions related to the epidemic began to be felt as early as the end of January).


Interview with Professor Reiner Braun, Chair of Entrepreneurial Finance at the TUM School of Management, Technical University of Munich

“The Argos Index® sheds light on a market sector that is notoriously opaque and under-researched, with a lot of potential to be unlocked”

The Argos Index® for Q1 2020 included just a few weeks of the corona virus health crisis, but the trend in the findings is clear: reduced business volume since Q3 is putting downward pressure on valuations and therefore also on prices. Investors are still there, but they’re waiting for a bit more visibility before investing. Professor Reiner Braun, Chair of Entrepreneurial Finance at the TUM School of Management, Technical University of Munich, explains his outlook for the mid-market unlisted sector, considering the current unforeseen events as the Covid-19 health crisis spreads to the global economy.

What’s your opinion of the Argos Index®?

The Argos Index® sheds light on the mid-market that is notoriously opaque and under-researched yet is a major source of economic growth and innovation. This means we get much of our market insights from larger transactions – both public and private, often from the US – and that doesn’t provide a true global perspective. Because the Argos Index® covers 2-3 business cycles in its 6-month range, the information is reliable and really tells us something about long-term developments in the markets.

The Q1 Index shows a downward trend. How much of that do you attribute to the anticipated “market correction” and how much to the global shutdown of economic activity due to the coronavirus?

Well, that’s the key question. We lack experience in comparable situations. With the collapse of Lehman Brothers in 2008, we had a banking crisis. Today we have a crisis, but not a change in fundamentals. It’s an exogenous crisis. The dip in valuations may not be as pronounced as we might expect. There are still a lot of private equity investors out there with cash, looking for deals, but keeping their powder dry. The depth of drop – be it a market correction or more – will be determined within the next few weeks.
A big concern I have that will center the stage in the coming month is what the crisis could do to EU solidarity. We see the economic advantages of the EU, even with Brexit behind us, and these advantages must prevail over the populist movements we see across the continent threatening European unity and the Euro. I think this is rather unlikely to become a serious threat, but if it does it will result in major turbulences.

Is the Argos Index® a useful tool for the German market?

In my view, Private Equity in Europe, and in Germany in particular, has still not exploited its full potential. This applies to both sides of the equation: fund investors’ interest but also company’s willingness to consider LBOs as a financing option. However, smaller firms in Europe might show an increasing openness to work with a Private Equity sponsor. I still see huge future potential as these well-positioned SMEs are the backbone of Europe’s and Germany’s economy. So, yes, the Argos Index® is a very useful tool for the German market as it targets what I think is the “sweet spot” of the European industry.

How might you use the Argos Index® in your classes on entrepreneurial finance – for example, to estimate valuation levels?

The Argos Index® shows some attractive cases for investment in Europe. I teach Private Equity (PE) every year and most of the teaching examples available to me are from the US. So, Argos gives a broader perspective of world PE. It adds value, presents another, broader, perspective.

What impact will the Covid-19 crisis and associated shutdown have on M&A activity? How much more leverage can mid-sized companies take on to engage in M&A activity?

If I look at deal returns from previous crises, I see the average return on investment is pretty attractive. Apparently, some players are able to buy assets on the cheap. But, the variance of returns in these past times is high too, so investors should be aware of the risk they are taking when trying to ride the wave: ultimately, no one knows what situation will prevail.

On the buy side in the M&A markets, I think those with deep pockets and a strategic motive will be active once the fog of uncertainty lifts. All others might focus on reviewing and managing their portfolio before they become active in the market again.

As to leverage, recently we had seen many Private Equity deals with levels higher than 7x EBITDA. This is a significant debt burden and I hope that there is enough flexibility for the companies left in the current situation. But my own research suggests that mid-market companies tend to have less debt than large companies. Maybe this gives them financial flexibility to become active in the M&A market if they see an opportunity. But, again, I think they should be patient and not rush into M&As just because the price is low. Today, even with low prices, it’s wise to be patient rather than aggressive because there is uncertainty all around. It’s a good time to refrain from making any long-term, binding decisions without a really convincing rationale.

How low do you expect valuation levels to go in this sector? Below 2008-2009?

Again, it’s the uncertainty that’s the killer. But I see a fair chance that prices will not go below those we saw in 2008-2009.

In my view, there are two scenarios to consider here: the first, if this health crisis continues and we get a second Covid-19 wave and another major lockdown, I see significant challenges for economies around the globe and there’s NO WAY we don’t go below 2008-2009 levels. The second scenario is we see this correction and then a ramp up again in a U-shaped recovery. Obviously, the second scenario is preferable.

What does the Argos Index® suggest about the future for mid-market companies in Europe, which tend to be drivers of economic growth?

Well, I’d like the next Argos Index® to show valuations for this sector at reasonable levels; fewer deals obviously but more strategic ones. This would send a signal that the European mid-market sector is characterized by high-quality assets that trade at reasonable prices even in times when the market sentiment is rather negative.
Maybe another way to look at it is to think about companies or industries that might benefit from our experience with this pandemic. I certainly think that we will see interesting life sciences deals in the near future. What is more, we need a new view on supply chains – not just “Well, it’s cheaper to produce in China and it just takes two weeks for the goods to get here.” Now things like the resilience of supply chains are becoming more important and reshaping of supply chains could be an economic benefit. I guess that many European mid-market firms are well-positioned to seize this opportunity.


Prices paid by strategic players fell to 10.0x EBITDA; prices paid by investment funds remained lower, at 8.8x EBITDA.

Multiples paid by investment funds are down 12% amid reduced volume since the 3rd quarter of 2019.

In the context of persistently high valuations, investment funds remain selective, posting an average multiple of 8.8x EBITDA. They are tackling the Covid-19 crisis with a level of dry powder that is increasing (1) and is 2.5x higher than in 2007.

(1) According to Preqin, the amount of dry powder (for the global private equity industry) has continued to rise, and stood at $1.45tn at 31 December 2019.

Graph 2 – Enterprise value / historical EBITDA
Source: Mid-market Argos Index® / Epsilon Research

Decrease in the share of transactions at high multiples to usual levels

The share of transactions with multiples above 15x EBITDA in the first quarter of 2020 remained at the levels of 2018 and the first half of 2019.

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

Drop in multiples of listed companies

Please note first that stock market multiples were calculated on the basis of spot prices at March 31st, which integrated the impact of the Covid-19 crisis. Care should be taken when comparing them to the Argos Index®, which is computed on the 6 months before.
The multiples of listed companies decreased by 21% as of 31 March 2020 to 6.8x EBITDA, in line with the fall in equity markets.

(1) EV/LTM EBITDA of 6.8x, Euro Zone listed mid-market companies (source:
(2) The EURO STOXX® TMI Small Index fell by 26.1% between 1 January and 31 March 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 / (1)

Rebound in European mid-market M&A activity in Q1 2020… before a drop to be observed in Q2 2020

Mid-market M&A activity in the euro zone in Q1 was up 15% in volume compared to the previous quarter and returned to its level of a year ago. It was not significantly impacted by the Covid-19 crisis until mid-March.

With 500 transactions over the last six months, business volume remains 15% below the average of recent years (2010-18), due to the high level of valuations and fears of a downturn in the economic cycle.

Average growth expectations for the M&A market in 2020 were still 4.7% at the end of 2019, in a survey of M&A professionals (1); but 76% cited an “unforeseen economic event” as the factor most likely to affect their business.

(1) Refinitiv 2019 “Deal Makers Sentiment Survey”.

Graph 5 – Eurozone mid-market activity (€15-500 million) in volume, by segment
Source: Epsilon Research / Market IQ

Increased weighting of Germany in the 1st quarter of 2020 in the Eurozone mid-market M&A activity

Several trends have recently emerged from mid-market M&A activity in the main euro zone countries:

  • Over the past six months, Germany’s weighting has increased to a record level (30% of deals). Germany is now the most active country in mid-market M&A, and it appears that its weighting has been increasing over the last few months.
  • France’s share has stabilised at 18% of mid-market deals. France remains much less active than Germany in this market segment, due to the lower proportion of SMEs in its economy.
  • The share of the southern part of the EZ has eroded: Italy and the Iberian Peninsula each accounted for less than 10% of mid-market operations in the first quarter.
Graph 6 – Eurozone mid-market M&A activity
Source: Epsilon Research / Market IQ

Newsletter subscription

* required fields