20/08/10

By Claire West

According to the latest published data from the PERDa database www.perda.co.uk, the first half of 2010 saw a slight recovery in average private company values from their historic low point at the end of 2009. This was set against the continued stabilisation of deal volumes after their collapse in 2008 and potentially indicates the start of some form of normality returning to the deal market.

Average UK PERs (price or consideration as a multiple of profits) increased to 5.3 for the six months to 30 June 2010, compared to 4.4 at 31 December 2009. This, however, remains low when compared to the long term average. In addition, the index shows the greater volatility in UK prices when compares to their European averages. Average prices in the UK peaked higher than in Europe in mid 2007 (8.1 v 7.3) and fell further in 2009/10 (4.4 v 4.8).

Mark Greaves, head of Corporate Finance for Francis Clark and one of the founder members of PERDa commented on the positive trend: “as well as the increase in average deal multiples, even more encouraging is recent market feedback that deal enquiries have increased substantially after the election/budget. The financial and economic outlook looks less uncertain than it was in early 2010, and this seems to have resulted in more deals being started, although it still remains to be seen how many of this can be funded and completed. With even relatively straight forward deals now taking up to six months to complete, it is possible any increase in completions may not occur until early 2011.

Bank funding, especially cashflow funding, remains difficult. However, there are some signs of a gentle relaxation of the effective total ban on cashflow lending at some banks. In addition, any business that performed even moderately well in 2009 and 2010 has obviously demonstrated its ability to weather a storm, and perhaps the “perfect storm”. This must be taken into account by the funders, and there is early, anecdotal evidence of an acceptance of this by some banks.

In contrast, the supply of equity has increased significantly over recent months, both at the smaller VC end of the market and from the larger PE funds. This has helped in a small way to offset the limited availability of debt, with some equity providers continuing to undertake deals without bank debt.

In addition, the deal market is likely to be increased by the sale of PE backed businesses that were originally scheduled for an exit between late 2008 to date, but were deferred. These companies are likely to be seeking an exit over the next 18 months in order to provide cash/return for their backers, now that some limited form of normality seems to be returning to prices and funding.”

PERDa is based on actual transactions recorded by expert corporate finance advisers from across Europe since 2005, which means it can provide accurate, essential information on both the pricing of private companies and market trends. The database is compiled by members of Leading Edge Alliance (LEA), a global alliance of major, independently owned accounting and consulting firms.