Manufacturers are raising the price of European SMEs to a new record

Large groups pay an average of 11 times Ebitda to take over unlisted European companies, according to the Argos index for the first quarter. A level never reached in fourteen years. Price inflation in France, on the other hand, is more moderate. Investment funds are marking time.


Large groups have never signed such large checks to buy SMEs in the euro zone. Manufacturers are ready to value 11 times the gross operating income (Ebitda) unlisted companies making 20 to 600 million euros in turnover – an unprecedented level since 2004, according to the Argos index of the first. trimester. “Manufacturers are able to offer high premiums by taking on significant debt without impacting their profits given the low rates and expected operational synergies”, comments Louis Godron, president of Argos Wityu.

Private companies much better valued than on the stock market

All investors combined (manufacturers and private equity funds), the general average of prices remained at the historic peak reached in the fourth quarter of 2018 (10.1 times EBITDA). The difference with the price of listed SMEs – paid 8.5 times operating profit -, battered by market shocks, has never been so high.

But a number of signals have turned orange, suggesting a reversal. Mid-market M&A activity in the euro zone fell 12% in volume and 30% in value. Faced with the still high price demands of sellers, investment funds are more reserved.

They offered on average 9.3 times Ebitda in the first quarter, a decrease compared to the end of 2018. “The funds invest in capital, resulting in higher production costs. They are cautious about macroeconomic risks and are vigilant about the risk of recession ”, testifies Louis Godron.

Lower prices in France

In fact, their constituents themselves, insurers and pension funds, are alarmed by the inflation of valuations. According to Preqin, 60% of them consider fund acquisitions to be overvalued and 38% of them expect a correction imminent or in the next twelve months.

Some transactions have also had to be canceled or are pending. House of HR, the Belgian specialist in temporary work, from which the French Naxicap Partners expected nearly 2 billion euros, has been withdrawn from the sale. Elior did not obtain the price it anticipated on Areas, its concession catering subsidiary. Finally, the sale of the Primonial manager is getting tougher.

In France, manufacturers and investors are nevertheless showing a relative measure compared to the rest of the euro zone, notes Argos. After an increase of more than 52% since the low point of 2008, the acquisition prices of unlisted companies reached 9.4 times the Ebitda (over 12 rolling months) against 10 times the Ebitda in the euro zone on this period.