What EBITDA multiples can you expect for your industry in the UK mid-market in H2 2024?

With the Bank of England dropping interest rates in August, the prospect of easier debt financing, and greater post-election clarity, H2 2024 and H1 2025 are shaping up to be a more conducive period for mid-market business exits.

H1 2024 has already shown a slight uptick in EBITDA multiples across the board, rising from 5.1 in H2 2023 to 5.2.¹

In this blog, we’ll be looking at the average industry EBITDA multiples in H1 2024 by industry, buyer appetite, and the outlook for the rest of the year.

EBITDA multiple trends in H1 2024

As always, those industries requiring low capital expenditure for scalability and low cost-to-serve commanded the highest EBITDA multiples in H1 2024. For example, software development and IT services commanded average multiples of 8.2 and 7.6, respectively.

Resilient industries, driven by long-standing demographic, consumer and investment trends, also collected higher multiples: on average, healthcare & pharmaceuticals companies were valued at 7.7x EBITDA, and e-commerce/web shop companies were valued at 6.7x EBITDA.

The biggest industry mover in H1 2024 was construction and engineering, whose average multiple jumped from 3.2 in H2 2023 to 3.5 in H1 2024, driven by robust demand for companies in this sector. On average, 10.5 interested parties contacted the sellers of businesses in this sector – up 0.2 year-over-year.

Overall, average EBITDA multiples in the mid-market ticked up slightly, rising from 5.1 in H2 2023 to 5.2 in H1 2024.

Buyer appetite by industry in H1 2024

After the M&A slump of 2023, the average number of interested parties per business trended upwards in the first half of 2024.

Software development, IT services, and construction & engineering were the most sought-after sectors, attracting 12.2, 11.2 and 10.5 interested parties per business on average, respectively.

Buyer appetite for wholesale trade and media & communication companies made a strong year-over-year recovery: on average, companies in wholesale trade attracted 7.6 interested parties on average, compared to 5.1 in H1 2023, while media & communication companies attracted 7.9 interested parties per business, compared to 5.9 a year earlier.

Overall, we seem to have entered a “seller’s market,” where demand exceeds supply, driving multiples upward.

How achievable is my industry’s average EBITDA multiple?

To achieve the industry-average valuation multiple, it is not enough to belong to a certain industry classification; companies must also deliver performance on par with industry standards.

To drive up your business’ valuation multiples ahead of your exit, you should focus on three key areas: driving growth, improving profit margins, and increasing capital efficiency.

There is also the so-called “Small Firm Premium” to be aware of – that is, smaller companies face higher risks of unrealised cash flows, as demonstrated by Damodaran (2011) and Grabowski and Pratt (2013), which in turn impacts their EBITDA multiple. This risk stems from factors such as over-reliance on key customers, suppliers, or specialised knowledge that may be lost with staff churn.

For example, Dealsuite reported that in H2 2023, companies with a normalised EBITDA of £5m collected an average multiple of 7.1 whereas companies with an EBITDA of £200,000 collected an average multiple of 3.8.

The outlook for 2024/25 EBITDA multiples

A brighter outlook for M&A in H2 2024 and H1 2025 should create a more favourable environment for valuations by fostering competitive tension.

M&A financing, for example, has become more accessible compared to the previous two years. The first half of 2024 saw increased activity across various debt markets, including investment-grade debt, high-yield bonds, and leveraged loans, all outpacing issuance levels from the same period in 2023.

Sluggish private equity activity, some experts predict, is also expected to recover from H1 lows. The emphasis on deploying capital is set to continue, as many private equity firms are sitting on substantial amounts of dry powder.

The upcoming Autumn Budget (30th October) should also bring greater clarity for investors and sellers alike. While CGT hikes look likely, some indicators are encouraging, with ministers laying out plans for increased investment in healthcare and infrastructure and lifting planning barriers for property development and onshore wind.

Strong appetite for “transformational deals” will also continue to drive strong deal flow in technology software, energy transition and healthcare.

Indeed, the strategic need for inorganic growth, or M&A, remains strong. Macroeconomic factors and monetary policy decisions in many countries have led to an environment of low economic growth, making organic revenue growth sluggish.

¹All data has been sourced from Dealsuite.com’s ‘M&A Monitor August 2024: Data and Trends in the UK&I M&A Mid-Market’ report.

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