Why Valuations Matter (Fifth of a Series)

“Only those who will risk going too far can possibly find out how far one can go.” –T.S. Eliot

So far in our special series on valuations we’ve reviewed key variables that impact equity valuations, and the strategies private equity has used to address them. We’ve also shared sponsors’ perspectives on challenges of higher purchase price multiples.

This week Lincoln International’s Larry Levine, managing director, valuations and opinions, discusses the backdrop for valuations:

“Despite market turmoil at the year’s start, and concern about weak overseas growth, Q1 GDP was up 3.2% – the strongest first-quarter in four years. Purchase price multiples, while continuing to be high, seem to be peaking or slowing. For Q4, the enterprise value over Ebitda for borrowers over 9x increased from 26% in 2013 to 48% today. Almost 25% of Ebitda can be attributed to pro forma adjustments.”

What’s the outlook for those multiples? “The technicals influencing purchase prices – fundraising for both private equity and private credit – will remain strong,” Levine said. “That suggests multiples will be sustained at this level for the foreseeable future.”

What’s your methodology on loan valuations?