CMF reported last month that EBITDA multiples for middle-market private equity groups are climbing steeply, mostly due to a lack of quality deal flow in the marketplace. Brookings Institution distributed data regarding American start-ups over the last 30+ years (see image below) that helps to explain this lack of quality deal flow.
Since 1985, business start-ups have been on a steady decline, particularly in the last 10 years. Even worse, the number of failures has increased as well, particularly in the last five years. If you think purchase multiples and deal flow are bad now, just wait.
- Expand your investment criteria to include “quirky” deals and carve-outs
- Pay up for the high quality companies and include intellectual property and aggressive growth initiatives to extract the highest value from the platform
- Focus on specific verticals and get the inside track