“We expect the M&A market to strengthen gradually going into 2009,” said the report, which was released Tuesday. “Stable valuations, looser credit and a rebounding dollar should support a healthy mergers and acquisitions market.”
The report adds that strategic b-to-b companies can expect “realistic pricing” moving forward, in part due to less competition from private equity companies that have less access to capital because of the ongoing credit crunch.
“After several years of steep increases in valuations—where generous terms drove leverage multiples as high as 10.5 times earnings before interest, taxes, depreciation and amortization (EBITDA)—we anticipate softer multiples for companies valued above $500 million, with firmer multiples—in the range of four to six times EBITDA—for smaller transactions,” according to the report.
Private equity companies will continue to pursue acquisitions “although the math has gotten harder,” the report said. In addition, the report found that there will be a “significant falloff” in private equity transactions above $2 billion, as invest-backed funds focus on transactions in the $25 million to $500 million range.