PCPI results show return to growth

The latest results of BDO’s Private Companies Price Index (PCPI) and the Private Equity Price Index (PEPI) for the second quarter this year show promising signs of a return to business and economic growth through acquisition.

Trade purchases made in Q2 2012 increased by 17.3 per cent to 435, up from 371 during Q2 2011. While over the 12 months to Q2 2012, private company deals showed a 21.2 per cent rise to 1,809 from 1,492 the previous year.

The research focuses on deals that have had a mean deal size of some £13 million and a median deal size of some £12 million. Meanwhile, the included deals for the PEPI have a mean deal size of £37 million and median deal size of £20 million. Therefore, readers should note that if a company is smaller than this, then a further discount should be applied.

The prices trade buyers pay for businesses also saw a dramatic increase and the results for the quarter demonstrate the highest multiple since Q3 2007. Deals were secured with an average price/earnings (p/e) multiple of 13.3 in Q2, where this rate was 11.5 in the first quarter of this year.

The figures confirm that business owners are now returning to growth by acquisition rather than relying on organic growth or sitting on company cash and waiting for the ongoing economic storm to pass.

Peter Hemington, M&A partner at BDO, said: “We are seeing relative stability in the volume of private company deals and deal pricing has been steadily rising. As organic growth remains challenging in difficult economic conditions, companies that have conserved cash during the downturn are increasingly focusing on acquisitive growth in order to satisfy shareholders demands for higher returns on capital.”

The KRL Group is one business to have benefited from making business purchases. The Leeds-based office equipment seller intends to establish a permanent base in Leeds by snapping up a rival firm, after recently concluding an MBO. KRL managing director George Baker told a local newspaper: “In this industry there’s quite a lot of people coming up to retirement age and there’s quite a few businesses that because of the climate have not succeeded so there’s opportunities to buy.”

This positive movement towards business buying is also reflected in private equity (PE) deals. The total number of PE purchases during Q2 were up by 26.5 per cent year-on-year, rising from 68 to 86. PE deals during the year to the three period, meanwhile, jumped by 11.6 per cent on the previous year from 327 to 365. In Q2 PE buyers paid an average p/e multiple of 12, up from 11.3 in the same period of the previous year.

BDO’s report also drew attention to a tendency for business purchase activity to focus on companies embracing advances in technology. BDO itself has acted as adviser on three recent deals in the travel industry (namely Audley Travel, Travel Republic and Iglu), which is seeing a greater move towards travel arrangements being booked over the internet or through staff using bespoke databases.

In a continuing uncertain economic environment it is encouraging to see a return to company growth by acquisition, and that firms are taking advantage of opportunities and advancements present in other businesses. All this may well indicate that business owners can expect easier movement and renewed interest within the business buying and selling marketplace.

Share this article

Latest Businesses for Sale

View more businesses for sale