European overview

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Multiples Heatmap business meeting 2

This report identifies key themes driving European Private Equity (PE) deals’ EV/EBITDA multiples on a quarterly basis. The objective is to assist PE investors in understanding drivers behind value trends across regions and sectors, leading to good investment opportunities.

Q1 2020 began as an active quarter but as COVID-19 entered Europe in the latter stages of Q1 and subsequently provoked lockdowns in Europe during March, dealmaking came to a halt. However, as an active beginning to 2020, Q1 PE multiples reported some stability when compared to previous quarters with the effects of COVID-19 not yet reflected in reporting.

In Q1 2020, average multiples paid in PE-backed transactions throughout Europe remained broadly flat when compared with the previous quarter and the same quarter in 2019.

For the third quarter in a row, the Nordic region saw the highest average multiples despite a 3% reduction versus the previous quarter and the same quarter in 2019. Despite the reductions, the average valuation for the quarter was still well in excess of 10x.

For the second quarter in a row, the DACH region saw the largest increase in average valuations, making it the second hottest region in Europe, up from fourth in the previous quarter. Valuations were up by over 6% on the previous quarter in 2019 and up by nearly 3% on Q4 2019.

Table Q1 2020 Multiples Heatmap

The UK and the Southern region were the only other regions to see growth in valuations when compared with the previous quarter, with moderate increases of around 1%. Average multiples in the UK and the Southern region have remained consistent for the last six quarters with averages varying between 10-11x and 9-10x in the respective regions.

LTM multiples distribution by region Q1 2020 01

There was a further sharp decline in valuation in Central and Eastern Europe in the quarter, with a decline of nearly 2% when compared to the previous quarter and nearly 15% against the same quarter in 2019. For the fourth quarter in a row, the region delivered the lowest average valuations.

France and Benelux also saw drops in valuation in the quarter with more modest drops of 1%. However, for the sixth quarter in a row, average valuations in France were still in excess of 10x. Similarly, for the sixth quarter in a row, average multiples in the Benelux region were between 9-10x.

Business services saw growth of over 2% in average multiples for the quarter, despite being down nearly 1% on the same quarter in 2019. Valuations in the quarter were, in fact, the highest they have been since Q1 2019.

In Q1 2020, the largest quarter on quarter increase in average valuations was seen in industrials and chemicals, with an increase of 4% on the previous quarter and 5% when compared with the same quarter in 2019. For the first time in six quarters, average multiples in the sector exceeded 10x.

For the second quarter in a row, average multiples were richest in the TMT sector, despite a 1% decrease in valuations compared to the preceding quarter and 2% against the same quarter in 2019.

In the previous quarter, the financial services sector was not the hottest in terms of valuation for the first time since Q4 2018 and in this quarter, the sector was the second richest. Financial services saw a further decline in average valuations of over 7% and it was the lowest average the sector had seen in over six quarters.

Business services saw growth of over 2% in average multiples for the quarter, despite being down nearly 1% on the same quarter in 2019. Valuations in the quarter were, in fact, the highest they have been since Q1 2019.

The consumer sector saw the lowest valuations for six quarters and dropped below 10x for the first time since Q1 2019. Food and beverage also saw declines when compared with Q4 2019 and the same period in 2019.

Healthcare also saw further declines in valuation, with its lowest average since Q4 2018 but still with averages well above 10x.

In terms of deal size, and for the third quarter in a row, the richest valuations were seen in transactions >€1bn, also being up over 6% on the previous quarter and the highest in over six quarters.

For the fourth quarter in a row, transactions between €500m-€1bn endured the second hottest valuations, despite being nearly 8% down on the previous quarter. Valuations in the sector were the lowest since Q4 2018.

Deals in the €250m-€500m range showed decreasing valuations of 1% and 5% when compared with the previous quarter and same quarter in 2019 respectively.

Modest quarter on quarter increases were seen in all sub €250m categories, despite the €50m-€100m range seeing the lowest multiples of any group in the quarter.

In this quarter, the Multiples Heatmap focuses on trends seen in the DACH region and the business services sector now the effects of COVID-19 are coming to the fore.

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