Argos Mid-Market Index Q4 2018: company valuations reach record level

20. Febru­ary 2019

Frank­furt am Main, Germany — Argos Wityu, an inde­pen­dent, pan-Euro­­pean invest­ment firm, and Epsi­lon Rese­arch, an online plat­form for unlis­ted M&A tran­sac­tions, unvei­led the Argos Index® Mid-Market for the fourth quar­ter of 2018. Deve­lo­ped in 2006, the index has measu­red the deve­lo­p­ment of company valua­tions of unlis­ted mid-market compa­nies in the euro­zone in which private equity funds had acqui­red a majo­rity stake in the six months prece­ding the survey since it was first published. With the current edition, the Argos Index reports speci­fic data for the German M&A market for the first time.

Stra­te­gic buyers drive valua­tions, index reaches all-time high of 10.1x EBITDA.
The deve­lo­p­ment of the multi­ples can be explai­ned on the one hand by stra­te­gic buyers, who paid an average EBITDA multi­ple of 10.7x in the fourth quar­ter as part of acqui­si­ti­ons, but also by finan­cial inves­tors, who valued compa­nies at 9.8x EBITDA.

Essen­ti­ally, the price increase is due to increased acti­vity in Euro­pean mid-market M&A tran­sac­tions — in the second half of 2018, tran­sac­tion volu­mes increased by 18 percent and cumu­la­tive tran­sac­tion values by 17 percent. The diffe­rence is parti­cu­larly large compared to the multi­ples of mid-cap listed companies(1), whose valua­tion has fallen by 11 percent to 8.0x EBITDA(2).

Valua­tions for unlis­ted compa­nies showed momen­tum in the second half of the year that was inde­pen­dent of deve­lo­p­ments on the stock markets(3). This can be explai­ned by seve­ral factors, inclu­ding high cash holdings by large compa­nies and high levels of “dry powder” from private equity inves­tors who are raising incre­asingly large amounts of capi­tal, as well as stra­te­gic buyers looking to acquire compa­nies in search of growth, and the ever-incre­a­sing demand from insti­tu­tio­nal inves­tors looking to improve their returns by inves­t­ing in unlis­ted companies(4).

Germany: high M&A volume drives purchase prices
For the first time, the Argos Index also analy­zes the German M&A market. In 2018, EBITDA multi­ples in Germany increased by 8 percent to 9.8x EBITDA, or by 3.8 multi­ple points since the low point at the end of 2009. This price deve­lo­p­ment is driven by a dyna­mic M&A market, whose volume increased by 18 percent in 2018.

Since 2013, the deve­lo­p­ment of German multi­ples has been in line with those of the euro area. The crises of 2009 (finan­cial crisis) and 2012 (euro crisis) had no impact on valua­tion multi­ples in Germany compared with the deve­lo­p­ment of valua­tion levels in the euro zone.

About Argos Wityu
Foun­ded in 1989 as Argos Sodi­tic, Argos Wityu is an inde­pen­dent pan-Euro­­pean invest­ment company with offices in Brussels, Frank­furt, Geneva, Luxem­bourg, Milan and Paris. Argos Wityu focu­ses on manage­ment buy-outs, buy-ins and spin-offs for small and medium-sized compa­nies with an enter­prise value between €25 and €200 million. The funds advi­sed by Argos Wityu invest in majo­rity stakes with equity tickets between 10 and 100 million euros. Since its incep­tion, Argos Wityu has laun­ched seven funds and comple­ted more than 75 tran­sac­tions. The focus is on growth and trans­for­ma­tion rather than high debt. The group has built a very strong track record in uncon­ven­tio­nal off-market tran­sac­tions, where Argos Wityu’s combi­na­tion of inter­na­tio­na­lity and local presence has contri­bu­ted to the deve­lo­p­ment of small and medium-sized enter­pri­ses. The current Fund VII (520 million euros), which was laun­ched at the end of 2017, has alre­ady comple­ted ten tran­sac­tions and is alre­ady more than 50 percent inves­ted. In total, Argos Wityu mana­ges funds with a volume of appro­xi­m­ately 1 billion euros. In Germany, the company has stakes in aktiv­op­tik, the fifth-largest chain of opti­ci­ans and acou­sti­ci­ans, and in Wibit Sports, the world market leader for floa­ting water parks. The invest­ment in Wibit brings to five the number of global market leaders in their respec­tive indus­tries in Argos Wityu’s 21-company invest­ment port­fo­lio: Gantrex, Henri Selmer, Sasa Demarle, Wibit and Zodiac Milpro.

About Epsi­lon Research
Epsi­lon Rese­arch has deve­lo­ped the first online plat­form for unlis­ted M&A tran­sac­tions aimed at profes­sio­nals such as M&A advi­sors, private equity inves­tors or experts. The Epsi­lon plat­form provi­des access to data, analy­tics, soft­ware tools as well as other services requi­red for the valua­tion of unlis­ted compa­nies: (1) EMAT, the largest data­base of tran­sac­tion multi­ples of unlis­ted compa­nies in Europe, with details on 8,000+ tran­sac­tions between €1m and €500m enter­prise value across all indus­tries, (2) studies and indi­ces regu­larly published by Epsi­lon, such as the Argos Index, (3) cloud-based soft­ware for M&A cont­acts and project manage­ment (“M&A CRM Suite”) as well as for valua­tion projects (compa­ra­tive multi­ples and port­fo­lios of PE funds).

About the Argos Mid-Market Index
The Argos Mid-Market Index measu­res the deve­lo­p­ment of company valua­tions of unlis­ted mid-market compa­nies in the euro­zone. The analy­sis is conduc­ted by Epsi­lon Rese­arch for Argos Wityu and published quar­terly. EV/EBITDA multi­ples repre­sent median values of mid-market M&A tran­sac­tions on a six-month rolling basis. The under­ly­ing sample is based on the follo­wing crite­ria: Acqui­si­tion of majo­rity stakes, target company is head­quar­te­red in the euro­zone, mid-market (equity value between €15 million and €500 million), exclu­sion of certain sectors (finan­cial services, real estate and high-tech), avai­la­bi­lity of rele­vant tran­sac­tion data.

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