Acquisition prices of European SMEs continue their slow decline to 9.7x EBITDA
Argos Wityu, the independent European investment fund, and Epsilon Research, the online platform for the management of unlisted M&A transactions, have today published the Mid-market Argos Index® for the first quarter of 2023. This index, launched in 2006, tracks the valuations of unlisted eurozone SMEs in which a majority stake has been acquired during the last six months.
“In the first quarter of 2023, acquisition prices of eurozone SMEs and the M&A activity by value in this segment moved close to the level recorded in 2020, the year of the shockwave associated with the Covid-19 crisis. This metric reflects a continued deterioration in the macroeconomic context, characterised by heightened geopolitical tensions, interest rate hikes amid persistent inflation, a slowdown in economic growth and equity market volatility,” said Louis Godron, Chairman of Argos Wityu.
- The Argos Index® recorded a limited decline of 2% to 9.7x EBITDA in the first quarter of 2023, reaching its lowest level since the first half of 2020.
- As is generally seen in times of crisis, the market is more polarised. The spread between upper mid-market and lower mid-market multiples remains at a record 5.0x EBITDA, while the share of multiples below 7x EBITDA and above 15x EBITDA has increased, representing 38% of transactions.
The prices paid by both private equity funds and strategic buyers are down slightly.
- The multiples paid by private equity funds show a limited decline of 1%, to 10.4x EBITDA, whereas activity is down 9% by volume and 23% by value.
- Multiples paid by strategic buyers show a more significant fall of 6% to 9.2x EBITDA.
The share of transactions below 7x EBITDA and above 15x EBITDA has increased.
- The share of transactions > 15x EBITDA represents 20% of analysed transactions , an increase compared to the quarters of 2022.
- The share of transactions < 7x EBITDA represents 18% of the sample, in line with the level seen in the fourth quarter of 2022.
European mid-market M&A activity falls to lowest level by value.
This quarter, mid-market M&A activity:
- continued to decline by value, with a fall of -9%, reaching its lowest level since the second quarter of 2020, at the peak of the Covid-19 crisis. This decline in the first quarter of 2023 is in line with the 63% annual decline in the European M&A market. It confirms the downturn in the M&A market cycle.
- is down 13% in terms of the number of transactions, driven by the 15% fall in the upper mid-market.
- is driven by strategic buyers. As in the previous quarter, the investment fund share remains below 15%, compared to 20% in 2021.
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Argos Wityu / argos.wityu.fund
Argos Wityu is an independent European private-equity group supporting the growth of SMEs and mid-caps and their management teams. With more than €1.4 billion in assets under management, over 30 years’ experience and more than 90 businesses supported, Argos Wityu operates from offices in Brussels, Frankfurt, Geneva, Luxembourg, Milan and Paris. The group seeks to acquire majority stakes and invests between €10 million and €100 million per investment in its two strategies:
– The Mid-market fund helps companies implement capital transfers to accelerate growth.
– The Climate Action fund aims to shape sustainable European leaders by facilitating their “Grey to Green” transition.
Epsilon Research has developed the first professional online platform for the management of unlisted M&A transactions. This platform includes data, analysis reports, software tools and services that are essential for evaluating and managing unlisted investments: EMAT, the first database of European transaction multiples, including analysis reports on 8,000 M&A transactions with values between €1 million and €500 million in all sectors; Indices and studies published regularly by Epsilon, including the Argos index; Cloud software for managing contacts and M&A projects or similar evaluation projects, private equity fund investments.
The Mid-market Argos Index® tracks valuations of unlisted mid-market companies in the eurozone. Produced by Argos Wityu and Epsilon Research and published quarterly, it corresponds to the six-month rolling median of the historical EV/EBITDA multiple for transactions meeting the following criteria: mid-market (value for 100% of securities between €15m and €500m), target domiciled in a eurozone country, acquisition of a majority stake, exclusion of specific activities (financial services, real estate, high-tech).
