“Anything that just costs money is cheap.” – John Steinbeck
At the PartnerConnect conference in Boston last week, three panelists (including your correspondent) held forth on trends in middle market sponsor finance. One audience question caught our attention: “Given the current market, does the level of valuations concern you?”
Of course, it depends what side of the transaction you’re on. It’s natural to complain about how other firms are paying toppy prices. “We don’t understand how they can make their returns work,” goes the commonly stated view.
But if you’re a seller in this market, sponsors have benefited by unloading portfolio companies at high multiples, sometimes years before expecting to do so.
Indeed it’s been a challenging buying environment. As our Chart of the Week highlights, purchase price multiples have climbed steadily since the credit crisis. In part, this is due to the decade-long bull loan market that’s afforded leverage multiples to climb. It’s also thanks to a favorable rate climate, and a tailwind from the wider US economy.