Capstone Partners Reports: Middle Market M&A Valuations Moderate, Select Industries Outperform

Rhea-AI Summary

Capstone Partners released its 2022 Middle Market M&A Valuations Index, showing that EBITDA multiples for M&A transactions under $500 million declined from 10.7x in 2021 to 9.9x in 2022. Tightened lending conditions and inflationary pressures led to reduced valuations, with only 36% of multiples exceeding 10.0x, down from 40% in 2021. Despite these challenges, industries such as Building Products, Healthcare, Industrial Technology, and Transportation recorded increases in EBITDA multiples. The average gross margin for sold companies dropped to 31.5% from 37.9% in 2021, while EBITDA margin fell to 18.8% from 19.5%.

Positive

• Certain industries like Building Products, Healthcare, and Industrial Technology experienced year-over-year increases in EBITDA multiples.
• 36% of middle market M&A EBITDA multiples exceeded 10.0x in 2022, indicating pockets of resilience.

Negative

• Average EBITDA multiples fell from 10.7x in 2021 to 9.9x in 2022.
• Average gross margin declined to 31.5% from 37.9%, indicating reduced profitability.
• Average EBITDA margin decreased to 18.8% from 19.5%, reflecting challenges in maintaining margins.

BOSTON, March 16, 2023 /PRNewswire/ -- Capstone Partners, a leading middle market investment banking firm, today released its 2022 Middle Market M&A Valuations Index, which examines EBITDA purchase multiples for middle market businesses. Leveraging market research and proprietary data, Capstone seeks to provide business owners and market participants greater transparency into the pricing dynamics of completed middle market merger and acquisition (M&A) sale processes.  

Newly Released Middle Market M&A Valuations Index Reveals Moderate Valuations With Select Industries Outperforming

Tightened lending conditions, increased buyer selectivity, and inflationary headwinds dampened valuations across the middle market in 2022. The average EBITDA multiple for M&A transactions under $500 million in enterprise value fell to 9.9x from 10.7x in 2021. Market clearing bids appeared less frequently in deal processes in 2022 as the competitive exuberance experienced through much of 2021 moderated. Notably, 36% of disclosed middle market M&A EBITDA multiples in 2022 exceeded 10.0x, down from 40% in 2021. However, select pockets of the market thrived despite significant pressures on pricing. The Building Products & Construction Services, Healthcare, Industrial Technology, and Transportation, Logistics & Supply Chain industries recorded year-over-year (YOY) increases in average EBITDA multiples during the three-year period ending in 2022. Premium pricing has often favored targets in nondiscretionary sectors with high levels of recurring or contract-based revenue.

In 2022, many buyers prioritized margin defensibility in assessing target companies. The post-COVID recovery in 2021 that brought a surge of demand encouraged many businesses to adopt a growth-at-all-costs mindset—a strategy that has proven unsustainable, evidenced by large scale layoffs and cost cutting measures among many public companies. Throughout 2022, inflation and labor challenges clearly impacted the profitability of middle market businesses involved in M&A sale processes. The average 2022 gross margin of sold middle market companies declined to 31.5% from 37.9% in 2021. In addition, the average EBITDA margin registered a decline, although less drastic, falling to 18.8% in 2022 from 19.5% in the prior year.

Also included in this report:

• Commentary on industry specific middle market M&A multiples and transaction volume.
• Discussion on the multiples paid by buyer type and how this dynamic has changed compared to the prior year.
• Insights to the typical margin and leverage profile of middle market target companies in 2022.

To access to full report, click here: https://www.capstonepartners.com/insights/report-capstone-partners-middle-market-mergers-and-acquisitions-valuations-index/

ABOUT CAPSTONE PARTNERS

For over 20 years, the firm has been a trusted advisor to leading middle market companies, offering a fully integrated range of investment banking and financial advisory services uniquely tailored to help owners, investors, and creditors through each stage of the company's lifecycle.  Capstone's services include M&A advisory, debt and equity placement, corporate restructuring, special situations, valuation and fairness opinions and financial advisory services.  Headquartered in Boston, the firm has 175+ professionals in multiple offices across the U.S. With 12 dedicated industry groups, Capstone delivers sector-specific expertise through large, cross-functional teams.  Capstone is a subsidiary of Huntington Bancshares Incorporated (NASDAQ:HBAN).  For more information, visit www.capstonepartners.com.

For More Information Contact:
Sarah Doherty
Director of Market Intelligence
sdoherty@capstonepartners.com
617-619-3310

View original content to download multimedia:https://www.prnewswire.com/news-releases/capstone-partners-reports-middle-market-ma-valuations-moderate-select-industries-outperform-301774218.html

SOURCE Capstone Partners

FAQ

What does the 2022 Middle Market M&A Valuations Index indicate about EBITDA multiples?

The index shows that EBITDA multiples for M&A deals under $500 million dropped from 10.7x in 2021 to 9.9x in 2022.

Which industries outperformed in the 2022 M&A valuations?

Industries such as Building Products, Healthcare, Industrial Technology, and Transportation saw increases in EBITDA multiples.

What was the impact of inflation on middle market valuations in 2022?

Tightened lending conditions and inflationary pressures led to decreased valuations across the middle market.

What percentage of M&A EBITDA multiples exceeded 10.0x in 2022?

Only 36% of disclosed middle market M&A EBITDA multiples exceeded 10.0x in 2022, down from 40% in 2021.

How did margins change for sold middle market companies in 2022?

The average gross margin declined to 31.5% from 37.9%, and the average EBITDA margin fell to 18.8% from 19.5%.