PE Entry/exit multiples by industry
Hello, everyone. I'm working on some simple case studies where I need to make assumptions on entry/exit multiples. I can assume no multiple expansion. Anyone has a list of EBITDA entry/exit multiples by industries? If there is no reference, whether I can assume a 9x purchase which includes 5x debt and 4x equity?
It’s probably worth doing public comparable and precedent transactions analyses as part of your case study to determine what the market value of the company is (and EBITDA multiple). Could assume your entry multiple is slightly lower than fair value as ideally a PE fund is paying at least a bit less than fair value.
Thanks. I'm a student. Do you know what websites provide these miltiples and precedent transaction data?
For public comps. Yahoo finance will do....Precedent transactions would be harder
Agree with this. It will be very hard to convince interviewers that you will get away with acquiring a high-growth, high-margin healthcare services business for 9x.
I may be wrong, but I presume you took 9x as a base as this gets equity % below 50% and fits the standard "5 turns." However, without any reference would be incorrect - remember you can still generate high-teen returns at >15x on a HC target levered at c.5x if growth and margin expansion is phenomenal.
Generally speaking on an x EBITDA basis...
Clearly this is not the bible by any means...but when you're simply informed that it is an Consumer Staples business for example, knowing the rough multiples is helpful
Thanks. I use 9x and 5x because I refer to an example privided in an IM tutorial from Merger & Inquisition. I can decide purchase muptiples based on your list, but what about debt muptiple? How can I then decide the leverage level?
Largely dependent on the business at hand - cash generation is key here (amongst a number of other factors such as industry outlook, near-term catalysts, contracted vs. uncontracted revenue etc.)
Typically more cash generative, defensive businesses can support 5-6x leverage.
Less defensive businesses with limited FCF yield will support anywhere from 2-4x.
Largely dependent on the business at hand - cash generation is key here (amongst a number of other factors such as industry outlook, near-term catalysts, contracted vs. uncontracted revenue etc.)
Typically more cash generative, defensive businesses can support 5-6x leverage.
Less defensive businesses with limited FCF yield will support anywhere from 2-4x.
What do you mean by FCF yield of 2-4%? FCF yield on revenue or EBITDA or equity purchase price or TEV?
FCF on EBITDA. Effectively it's the ability to generate cash from EBITDA which is your key number in leverage. Let me explain:
A tech firm that has a 80% cash conversion on 100m in EBITDA.
vs an Industrials firm that has a 40% cash conversion on 100m in EBITDA.
Assuming 0 growth for 5 years, the tech firms has generated 80*5=400m of cash, that can repay debt - so 4x EBITDA where as the industrials firm will have generated 40*5=200m in cash, so a 2x EBITDA leverage. Now both firms may grow allowing both to leverage say 2 turns more so 6x and 4x respectively.
Good enough for a student or for a generic case study - http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/vebitda.htm…;
Good enough for a student or for a generic case study - http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/vebitda.htm…;
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