Mercer Capital's Financial Reporting Blog

Cheap Debt Driving Up LBO Valuations

There’s an interesting phenomenon going on in the M&A markets so far in 2013. Valuations are pushing higher despite an overall slowdown in deal-making activity and higher proportions of equity relative to pre-financial crisis levels.

As highlighted in a recent article on, leveraged buyout valuations hit their highest level in over a year in June.

True, there are a few large deals that pull the overall statistics higher, but they’re present nonetheless. The combination of banks’ increased willingness to lend and high levels of uninvested but committed capital at financial sponsors seems to have fueled the trend. Add to that the increased pressure for growth that executives face in a weak economy and you can understand why deal multiples (and competition for quality targets) are increasing.

For the PE-backed LBO, this means that careful due diligence is critical. The state of the market at the exit date for today’s new class of portfolio companies may not matter much if the acquirer overpays on the front end. I guess we’ll check back in five to seven years and see how things turn out.

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Mercer Capital’s Financial Reporting Blog

Mercer Capital monitors the latest financial reporting news relevant to CFOs and financial managers. The Financial Reporting Blog is updated weekly.