CEPRES today released their latest analysis of the North American Buyout market revealing the changing dynamics in pricing multiples and value creation post-GFC (Global Financial Crisis). By analyzing the 4,485 North America Buyout deals since 2009, CEPRES discovered the buy-sell pricing spread has been compressed, while both Entry and Exit Multiples have trended higher to achieve historical highs over the last decade. Multiple expansion is no longer a strong driver in value creation. It only contributed 15% to the valuation growth after the GFC, compared with 31% pre-GFC. Under the challenging pricing fundamentals, revenue growth has come to dominate as a driver of returns. Below the covers different sectors can be winners and losers showing a diverse pattern for different industries – Healthcare still provides strong multiple expansion and revenue growth contribution of 60%, whereas Technology sectors are dominated by the highest revenue growth expansion and suffer a drag effect from Margin Expansion.

Highlights:

• Based on CEPRES Market Data of 63,147 PE-backed companies worth $23 trillion
• Outcomes of 4,485 North American Buyouts post-GFC (2009-2017)
• Buy-sell pricing spreads compressed from 3.7 in 2009 to a low of 1.5 in 2014
• Multiple price expansion reduced from 31% pre-GFC to only 15% post-GFC across the market
• Value creation heavily driven by Revenue Growth especially in the Tech and Healthcare sectors
• Healthcare is currently one of the best performing sectors generating gross pooled returns for investors of 30.6% since the GFC

The full report is available to CEPRES members from: https://www.cepres.com/latest-intelligence-for-lps

Commentary:

"Tech companies are the greatest drivers of revenue growth. They often have very lower or negative EBITDA and thus massive entry price multiples. As they mature and become profitable through EBITDA growth, natural market pricing kicks in and their pricing multiples drastically reduce. A well-known public example is Amazon – post-IPO the low EBITDA led to massive PE ratios. As the bottom line came more into focus, the EBIDTA multiples reduced. Today Amazon has a very impressive PE ratio of 130, but that is over 90% lower than it was 5 years ago at 1,445!"

Dr. Daniel Schmidt, CEO CEPRES.

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PE.Analyzer is an online investment decision network for private markets. It delivers easy and powerful Market Data, Due Diligence and Portfolio Management for 1,850 institutional LPs and GPs. Investment cash flows on 5,942 funds and 63,171 PE-backed companies worth $23 trillion have been securely exchanged through PE.Analyzer. It is the only platform providing Technical & Fundamental benchmarking of private deals and portfolio companies to institutional investors and fund managers to underwrite their investment decisions and support their fundraising goals.

About CEPRES

CEPRES is an innovative FinTech company helping investors and fund managers in private markets become stronger investment professionals through advanced tools, thought leadership and deep investment data. Through CEPRES, Investors (LPs) and fund managers (GPs) can interact on a single, confidential platform in complete privacy. LPs gain deep market insights, forecast investment outcomes and enhance due diligence to drive better investment returns. GPs can manage their track record, precisely benchmark their deals and find new sources of capital from around the world. For further information, visit www.cepres.com.