All that dry powder is driving up multiples for industrial deals.
Before the go-go days of 2006, industrial firms were selling for 6.5x to 7.5x EBITDA. The credit-fueled buyout craze then caused multiples to surge to 8.5x to 9.5x EBITDA for industrial companies that were worth only 7x, before the credit crunch made multiples irrelevant (no deals, no multiples).
Today, PE firms are back shopping for deals and industrial companies are selling for inflated multiples, roughly 8.5x to 9.5x EBITDA, an East Coast private equity pro told me earlier today.
An industrial company that is low risk and touts average growth potential can go for a high multiple. Consider Total Safety, which DLJ Merchant Banking Partners is expected to auction off shortly. The company has about $186 million in revenue, $137 million in debt and is expected to sell for around 8x EBITDA.
“There’s a lot of money on the sidelines chasing fewer deals and that is driving up prices for any halfway decent business,” the investor said.