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Private company prices on the up

Private company prices climbed for the second successive period in the third quarter of 2009, according to the latest BDO Private Equity Price Index (PEPI).

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Private company prices climbed for the second successive period in the third quarter of 2009, according to the latest BDO Private Equity Price Index (PEPI).

The PEPI, which tracks the price/earnings multiples paid by private equity firms for private companies, climbed by four per cent to an 11.8 times multiple in the third quarter. The prices paid by trade buyers was also up, rising five per cent to 1.7 times.  

But although prices paid are greater, deal volumes remain low. In the third quarter only 518 deals completed, the seventh successive quarterly decline in total merger and acquisition activity.

BDO M&A partner Christopher Clark said the higher multiples reflected a “general increase in optimism” but warned that anticipated future rises in capital gains tax and income tax would “materially” affect deal valuations in the future.

Tighter terms on bank debt kept volumes down, especially for private equity firms targeting deals worth more than £250m (€275m). Of the 26 large deals worth more than £250m completed so far in 2009, only three involved private equity firms.

Stock market prices, which have climbed notably in 2009, have to date had little impact on the prices private companies change hands for.