[PARAMETERS UPDATE P5.4] EBITDA MULTIPLES

The EBITDA multiples in 2021 not only reached, but much exceeded pre-pandemic levels. It is too early to determine the reasons why the EBITDA multiple for footwear companies surpasses 33X, while the multiple for MedTech firms exceeds 35X. On the one hand, the market’s excess liquidity might be a factor. High EBITDA multiples, on the other hand, may be viewed as a way to discount inflation. What is known is that the expansionary measures undertaken by central banks in response to the COVID -19 financial crisis will have major inflationary effects.

EBITDA is an acronym that stands for earnings before interest, tax, depreciation, and amortization. EBITDA multiples are one of the most commonly used business valuation indicators that is often used by investors or potential buyers to assess a company’s financial performance. The EBITDA multiple will depend on the size of the subject company, its profitability, its growth prospects, and the industry in which it works.  

You can refer to the table below to see how the EBITDA multiples for the industries available on the Equidam platform will change on November 29th, 2021. These are applied to compute the Terminal value in the DCF method with Multiple and the potential exit value in the VC method.

The data is based on the 2021 estimate, published annually by Prof. Aswath Damodaran of New York University.

DISCLAIMER: The COVID-19 pandemic led to large swings in revenue for many industries, mostly in the positive. This trend is analysed in greater depth below, with some prominent examples given. It is worth considering how this is represented in your industry; whether it is a correction accelerated by COVID with long term implications, or whether your industry may see a reversal of this trend in the year(s) to come.

*For these industries, a higher level business sector multiple is applied

**For these industries, a lower activity-based level is available

The industries with the biggest growth in the EBITDA multiple from 2020 to 2021 are MedTech (∆ 47.72%), online service (∆ 34%*), footwear (∆ 79.16%), gaming (∆ 147%), and airlines (∆ 205%), as shown in the table.

According to SalesForce’s Q1 Shopping Index, digital revenues increased by 45% in 2021, well beyond pre-pandemic levels. This rise shows that retailers will need to invest in the e-Commerce space in order to adapt to the digital demand. 

MedTech industry’s revenues increased for the fourth year in a row. From January 1, 2020, to July 31, 2021, public MedTech valuations in the United States and Europe increased by 55%, outperforming all major indices except digital health. In the 12 months ending June 30, 2021, the industry attracted $9.1 billion in venture capital, a 34% increase over the previous year and the largest level in at least a decade (La Place, 2021). 

Following the industry’s worst year on record, airline industry recovery has been gradually increasing in 2021. Two factors contributed to this growth. First of all, airlines have received $243 billion in life support from their governments. Second, consumer confidence has recovered since the lockdown last year, and consumers’ stockpiled income has aided the resurgence of domestic travel (Iata, 2021). 

The first quarter of 2021 confirms the very dynamic expansion of the online gambling market, with a 35% gain in turnover compared to the same time in 2020, after a unique year in 2020 that finished with a 22% increase in the sector’s revenue. Sports and horse racing betting hit new highs, but poker, which was still on the increase, began to settle down (Anj, 2021).

Finally, athletic footwear sales increased by more than 35% in the first half of 2021 compared to the same period in 2020. Shoe chains were the most successful channel this year, owing to the large number of stores that closed last year. They grew by more than 50% over the previous year. Both hiking and walking shoes outpaced the market, with sales up over 50% on average, as expected, due to consumers’ growing desire to get outside and safely exercise (NPD Group, 2021).

* = according to Damodaran, online service multiple would have been more than 44%, which consequently would have misled online service companies’ valuation. For this reason, we have decided to increment the EBITDA multiple by the average increase in EBITDA multiples in all the industries in 2021, meaning 34%. Thus, we obtained an EBITDA multiple for online service companies of 26.3%.