Sales Price To EBITDA Multiples Jump 23% In First Quarter
EBITDA multiples for established, private sector businesses sold in the U.S. surged 23% in the first quarter of 2024, according to the new DealStats Value Index Digest released on Monday.
The report focuses on the multiple of median selling prices to EBITDA for established private companies and takes an average of the three previous quarters to arrive at the 4.3 multiple for the first quarter of this year which represents a 23% increase over the multiple calculated in the final quarter of 2023.
That 23% increase for the quarter was the strongest quarterly boost since the 31% increase posted in 3Q22 when market conditions were finally beginning to stabilize post-pandemic. Since then, EBITDA multiples have moved sideways over the last five quarters before this latest quarterly surge.
Selling Price To Net Sales Ratio Remains Unchanged
Another key metric for business owners contemplating the valuation of their enterprise is the selling price to net sales ratio which BVR also updates in their quarterly report by taking an average of the previous three quarters.
The median selling price to net sales for established, private sector business in the U.S. was unchanged at 0.54 in the first quarter of 2024. In other words, if a sold business had $10 million in net sales, the median selling price for the business was $5.4 million.
Over the past six years, the median selling price to net sales ratio has only moved up more than 10% in a given quarter on two occasions: 11% in 2Q21 and 12% in 4Q21, and down more than 10% on one occasion: -12% in 1Q22.
EBITDA Margins Remain Above Historical Levels In 1Q24
The DealStats Value Index Digest also focuses on EBITDA margins of sold businesses over the previous quarter. EBITDA margin is a measure of a company’s operating profit with EBITDA reported in a ratio as a percentage of revenue.
As you can see below, EBITDA margins (in green below) moved in a fairly tight range of 12-13% during the pre-pandemic years before surging 25% in the first quarter of 2022 and another 27% in the first quarter of 2023 to reach a record level of 18% before settling back to the current level of 15%.
The graph above plots EBITDA margins (in green) together with the Median Selling Price to Net Sales Ratio (in blue) covered in the previous section of this article.
Business Valuations By Industry: Current vs. Historical
In addition to the insight we gain about current business valuations from the charts above, the DealStats Value Index Digest is a great resource for business owners in specific industries trying to get a feel for valuations in their individual sectors.
When you look at the chart below, you get a better understanding of why the industry breakout is so important given the wide range of EBITDA multiples from 2.50 on the low end for “Arts, Entertainment & Recreation” businesses to 17.60 on the high end for “Information” businesses. The following chart reflects EBITDA multiples for private sector businesses sold over the last 12 months.
The DealStats quarterly report always takes this industry focus one step further by comparing the values in the bar chart above with the EBITDA multiples by sector for all time periods that BVR has in their database for private company transaction data.
The two sectors where businesses sold for the highest EBITDA multiples compared to their historical average were “Information” (17.6 vs. 11.0) and “Finance & Insurance” (9.80 vs. 7.60).
On the opposite end of the valuation scale, “Mining, Oil & Gas” businesses sold for the lowest EBITDA multiples over the past 12 months compared to their historical median (2.90 vs. 8.10) followed by “Scientific & Technical Services” businesses (3.30 vs. 5.90).
To download the full DealStats Value Index Digest PDF for this quarter, click here.
Contact CII Today
If you own an established, private sector business in Florida or Georgia and would like to get a better understanding of the current market value of your company and important steps you can take today to maximize that value, get in touch with a CII business advisor today.