While exit multiples for deals completed in 2016 was overall only modestly down on 2015, at 14.8x EV/EBITDA compared to 15.2x, that number disguises some sharp changes both across sectors and across countries and regions.
In particular it is striking that the valuation of consumer deals, as a group, was significantly lower than a year earlier. Globally valuations fell from 15.9x to 13.8x, with valuations in the US down from 14.3x to 9.1x. This would seem to be the consequence of many factors, including the US election, the strength of the dollar and the nature of the deals completed. But it also seems a strong endorsement of the widespread sense that parts of the market that are most affected by technological advance seems to be attracting higher valuations than “legacy” industries.
Hence also, perhaps, materials saw a sharp fall in global valuations from 14.7x to 13.3x and retail also saw a contraction in global valuations. So actually did high technology, but from from much higher levels, falling from 16.9x to 15.8x. Contrarily, healthcare, which seems to be seeing a growing scramble both for prospective therapies and for disruptive technologies saw strong advance from already exalted levels, up to 19.3x from 18.4x; and energy and power started to see a revival after several years of famine, with valuations rising from 12.2x to 13.2x.
Within those headline numbers the impact of politics seems clearly to be visible in the valuations across countries and regions. Most conspicuously, deal valuations across the market in the UK fell from 13.7x in 2015 to only 12.3x in 2016, as uncertainty persisted even despite the fall in sterling. US valuations fell even more sharply, from an admittedly much higher base, from 16.3x to 14.5x. The only improvement in regional valuations were modest ones in Canada, continental Europe, and EMEA, all of them from lower levels than prevail in the US and Asia.
Another telling indicator of demand for assets, covered in Thomson Reuters 2016 M&A data review published on January 4, is the premium over the prevailing share price paid by acquirers. Here the variation in number is smaller than the change in valuations. The messages are sometimes contradictory with valuations, but nonetheless telling. Premia in high technology and energy and power stand out, rising globally from 27.8% to to 30.3% and from 29.5% to 31.8% respectively. Of course valuations remain depressed for many energy companies, especially where the slump in prices put pressure on balance sheets, and these premia may still represent value for brave aquirers: but the rise in technology premia seems to underline yet again the value of pioneering disruptive applications.
It is also striking that premia in North America are persistently higher than in the rest of the world, averaging 35.9% in the US and as much as 42.2% in Canada, compared to a global average which rose only from 27.5% in 2015 to 28.2% in 2016.
The numbers in the UK, where a smaller sample than usual and heightened volatility after the Brexit vote presented evident anomalies, perhaps underlines the dangers of reading too much into one year’s figures. For the UK’s deal premia, up from 33.8% to 39.2% looks aberrent. However there does seem to be a clear trend: that the appetite for deals remains robust; but that demonstrable ability to add value in the world’s rapidly changing competitive environment is growing at the time when the pace of globaliation and disruption is accelerating. These trends are surely unlikely to abate.