Accountancy firm BDO has unveiled its latest Private Company Price Index (PCPI) and it shows that valuations of both public and private firms shot up in the course of last year.
From October to December 2009, the average price/earnings multiple of London-listed companies increased to 15.1, marking a 78 per cent rise on the figure recorded at the end of the first quarter of the year. It also represents the highest level since the peak of 2007's M&A boom.
Private firms are selling for 11.9 times profits, according to the data, pointing to the highest level since early 2008 and an 18 per cent increase over the last three quarters. The figure is 12.0 times earnings where private equity buyers are involved.
Christopher Clark, M&A partner at BDO, comments: "We've seen a pretty dramatic recovery in public market multiples, particularly during the second half of 2009, as well as a mini-recovery in private company valuations."
He attributes the recovery to rising public company valuations giving buyers more confidence to pay higher prices, a shortage of quality assets and a pent-up supply of private equity capital.
The number of transactions completed still fell for the eighth successive quarter, however - to 445 acquisitions. That's a 20 per cent drop on both the third quarter of 2009 and the same period a year earlier.
And while credit availability may have picked up in the course of last year, it is still only available for the very best assets - and at significantly higher margins.
Overall Clark identifies "plenty of positives" for buyers in spite of tax increases and public spending cuts on the horizon: "Improvements in the debt markets are likely to continue, and there will be a degree of catch-up following de-stocking during 2009."
Many private equity houses, which in most cases have funds with predetermined investment periods, have lost 18 months of deal activity, he concludes: "They will be looking to invest and make up for lost time, as well as realise some of their more mature investments." 
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