Valuation multiples continued to surge in the fourth quarter of 2017, according to GF Data. Deal pricing pushed upward to an average mark of 8.1x EBITDA, a 19.3% increase over the year ago fourth quarter (6.8x) and a 7.0% jump from 3Q:17 (7.5x). The 8.1x mark is a 28.5% increase over the GF Data historical average multiple of 6.3x, which includes deals dating back to 2003.
Completed deal volume for the fourth quarter was up 19.3°/o over the corresponding quarter last year, and 41.7% higher than Q3:2017. GF Data reports on transactions completed by a pool of 201 private equity funds and other sponsors on transactions they complete in the $10-$250 million Total Enterprise Value (TEV) range, with TEV/ Adjusted EBITDA multiples of 3-15x.
The active fourth quarter is notable given the anecdotal impression that some sellers once again pushed off end-of-year closings in anticipation of federal tax changes. Historically, fourth quarter volume is the highest volume quarter of the year, and averages approximately 25% higher volume than the following Q1.
Deals involving above average financial performers and businesses with higher enterprise values continue to command demonstrable premiums. The quality premium* for above-average performers was 27.1% in Q4:2017, off 10.3 percentage points from the prior year period but still a remarkable 18.5 percentage point increase over the historical average. The premium for deals with larger enterprise values in 40 2017 was 2.3x EBITDA, up 24.4% from last year's Q4 and up 73.3% from the GF Data historic average of 1.3x EBITDA.
* GF Data defines Quality Premium to include better financial performers or those businesses with TTM EBITDA margins and revenue growth rates above 10% or one above 12% and the other at lease 8%. Outliers on the high side are also excluded.
As seen in "Mergers & Acqusitions," April, 2018.