Valuations continue to fall

The Argos Mid-Market Index has revealed that company valuations in the euro zone have collapsed to their lowest level since records began in December 2004.

The Index, created by Paris-based buyout house Argos Soditic, measures the valuations of small and mid-market companies and showed that in the first semester of 2009, valuations decreased to 6.2x EBITDA from an all time high of 9x EBITDA in June 2007.

Bob Henry, partner at Matrix Private Equity Partners (MPEP) said: “It has taken some time, but there is a greater consensus between buyers and sellers about price. Vendors are realising that the frothy valuations seen in 2007 are unlikely to be experienced again (at least until the current recession has drifted out of folk memory) and buyers have realised that there is a proper price to pay for good assets.”

The report points the finger of blame at the lack of short to mid term visibility which has made buyers more cautious. Financing conditions are also more difficult, particularly for buyouts, which have brought down leverage and valuations.

Giles Mougenot, president of Argos Soditic said: “The decline of valuations is explained in part by the fact that some sellers either cannot or do not wish to put off divestments and are thus willing to accept lower valuations.”

The M&A environment has also remained depressed. In the first semester of 2009, 300 mid-market operations carried out, a decline of nearly 40% compared to the previous semester. The buyout market is essentially at a standstill. There has been an 80% decline in transactions, with only 30 completed in the past two years.