More analysts question the use of size premia. Still, the smallest companies sold at a 45% discount to overall market prices in 2020, says a set of new general indices produced by MarktoMarket. These breathtaking haircuts on value were presented at last week’s ICAEW Business Valuation roundtable.
Rather than disappearing, as many analysts claim, or being immaterial, as others argue, the discount in this study increased from 31% in 2019.
“Nano” transactions, with values less than £2.5 million, took most of the brunt of the COVID-19 downturn. “Micro” deals (at prices in the £2.5 million-to-£10 million range) had much smaller EV/EBITDA multiple discounts for the same period, as shown below. They were also discounted, but not nearly as much.
Deals about £10 million continue to see premium pricing compared to the overall market average, MarktoMarket concludes. It’s at this range where deal competition drives higher prices from private capital, and this clearly protected those sellers from loss in value during 2020.
| Size of transaction (£s) | 2019 Multiple | 2020 Multiple | EV/EBITDA Discount Range Compared to Full Market |
|---|---|---|---|
| Nano (<£2.5M) | 6.4x EV/EBITDA | 5.1x EV/EBITDA | -31% to -45% discount |
| 1.2x EV/revenue | 1.2x EV/revenue | ||
| Micro (£2.5M-£10M) | 8.5x EV/EBITDA | 7.5x EV/EBITDA | -8% to -19% discount |
| 1.9x EV/revenue | 1.7x EV/revenue | ||
| Small (£10M-£50M) | 10.5x EV/EBITDA | 10.5x EV/EBITDA | +8% to +14% premium |
| 1.9x EV/revenue | 1.9x EV/revenue | ||
| Medium (£50M-£250M) | 13.6x EV/EBITDA | 12.9x EV/EBITDA | +18% to +40% premium |
| 2.8x EV/revenue | 2.5x EV/revenue |