Mark Lucas reports on the latest UK200Group SME Valuation report:
The last two years has seen a significant reduction in the number of business sales and acquisitions as a result of the global economic conditions.
Despite the ultra low interest rates, bank finance is significantly more difficult to obtain, with the principal drivers being the capital requirements and risk attitudes of banks rather than the cost of funds or the fees which banks charge to arrange deals.
Business valuations are traditionally a multiple of earnings. The common perception is that economic conditions have reduced valuations. However, the UK200Group SME Valuation produced by the corporate finance panel of the UK200 Group (of which we are members) shows that lower valuations are being caused more by the squeeze on profits than the multiple applied.
The latest results show, interestingly, that the average price to earnings (p/e) ratio has fallen from 6.8 times post tax profits to 6.0 times. The ratio of deal value to EBITDA has actually increased from 4.6 to 4.9 times. Average deal size in the last two years continues to be just under £3m.
