Over seven months on from Brexit, debt markets continue to fly, private equity funds are accumulating further dry powder, consumer confidence remains resilient and the UK economy is consistently outperforming expectations.
That there is a lack of high quality businesses coming to market presents an opportunity for well-prepared sellers. Far from investment committees' standards slipping, there are a number of recent examples where pen has barely been put to paper on information memoranda before a well-educated buyer has emerged victorious. Piper's recent £137m sale of Loungers to Lion Capital in December was always rumoured to be a Q1 2017 process. It was expedited by a well prepared business, motivated management team and a first class target business. In this type of situation, double digit multiples of fully loaded run-rate EBITDAs are eminently achievable. And this type of process is often preferred by vendors and acquirers who are keen to reduce any risks associated with a process, avoid disclosing confidential information to a wide population and minimise distractions to the day-to-day running of a business.
Prequin found that investors paid a multiple of 10 times earnings for purchases in the past two years on average. This is only slightly less the 11 times multiple that private equity-backed buyouts were paying in the boom of 2006 and 2007.Demand among private equity groups is also driven by the amount of uninvested cash — often known in the industry as dry powder — that has soared as managers have not been able to find the right assets to buy but are under pressure to invest money raised. Private equity coffers have been boosted by the availability of low-cost debt.