Seventeen deals worth $ 165 million were struck between June 24 and August 2, according to Dealogic, compared with 20 worth $ 3.27 billion in the same period the previous year.
The slump has also been felt across Europe, with the $ 5 billion combined value of 70 agreed deals down 77% on the previous year. It means 2016 had the second-worst July since at least 2004, just behind 2009.
Advisers and buyout executives blamed high seller expectations for the drop. Ian Bagshaw, co-head of private equity for Europe, the Middle East and Africa at law firm White & Case, said: “Valuations have been seller-friendly for a while now, in some respects it has probably been one of the longest bull runs in recent economic history.”
Andrew Aylwin, a partner at mid-market buyout firm Lyceum Capital, said: “Reputedly, pricings in some auction processes [which Lyceum wasn’t involved in] have seen firms looking at paying 13x,14x,15x multiples [of earnings before interest, tax, depreciation and amortisation]. Some big, big prices.”
The sale of hairbrush brand Tangle Teezer, which has attracted private equity interest, is expected to fetch up to 15x ebitda, according to a person familiar with the matter, while PAI Partners’ acquisition of medical device maker Atos in May 2016 was for a multiple in the “high teens”, one person close to the situation said.
Much of this has been driven by the record amounts of uninvested capital that buyout firms are sitting on – the figure for Europe-focused funds currently stands at $ 169.4 billion – coupled with fierce competition from strategic buyers.
David Silver, head of European investment banking at the investment group Baird, said the situation was probably due to “a combination of people pitching for deals and owners of businesses looking at outcomes of other transactions thinking ‘well if they can get that for that business, then surely I can get the same for my business and hence I should embark on a sale process’.”
However, the post-Brexit turmoil has prompted some buyers to demand discounts from sellers. Karan Dinamani, a partner at law firm Allen & Overy, said there had been an immediate effect on pricing, saying: “Virtually every deal [post Brexit] has gone for a price drop… Anything from 5% to 10%. It’s not always accepted by sellers but it is being accepted in a number of instances.”
Bagshaw added that the impact on pricing was likely to be felt around Europe.
He said: “People in the UK are obviously fixated on Brexit but you also have to remember the political instability sweeping across Europe has meant that people are going to pause and take stock. And, actually, sellers will need to reconsider valuations.”
Additional reporting by Becky Pritchard