OREANDA-NEWS. Fitch Ratings says in a new report that enterprise value (EV) multiples (EV/EBITDA) of European leveraged finance transactions continued rising in 1H15, and recovered to pre-crisis levels ahead of the August 2015 equity market correction. Global fiscal and monetary stimulus in the post-crisis years, including monetary stimulus in the eurozone in 2015, supported corporate profits and multiple expansions, even though the broader economic recovery has been slower to develop in Europe. Monetary stimulus supported IPOs, with leading European indices returning to, or establishing new all-time highs.

Sector multiple performance, however, varies and median transaction multiples have fallen slightly to just over 9x in 1H15, after breaching 10x in 2014. Medians over the past year remained well above the 8x recorded from 2009-2012, despite recent softness and volatility in equities. Sharp rises in the chemicals sector (to 8.8x in 1H15 from 4.6x in 2014), diversified manufacturing (9.4x against 7.8x) and health care (33.1x against 11.8x) were offset by lower multiples recorded in the consumer products sector (8.7x against 10.7x), diversified services (7.5x against 12.4x) and energy (3.1x against 10.6x).

The post-crisis M&A recovery has been led by corporate trade buyers as they seek to acquire revenue growth, pursue additional cost cuts in combinations and regain pricing power by taking out excess capacity in their sectors. This is in contrast to the pre-crisis M&A market, characterised by financial sponsors taking advantage of cheap credit and ample pricing power to drive organic top-line revenue growth and margin expansion. Last year and 1H15 saw an acceleration of trade-buyer transactions with growth of over 50% in 2014.

Financial sponsors have been unable to compete in vendor auctions as their return and leverage requirements put them at a competitive disadvantage to less constrained trade and public-equity investors. Sponsors nonetheless benefit as they became active sellers of assets and have recently turned to higher equity contribution investments in growth-oriented technology and service sectors. They are also increasingly engaging in add-on acquisitions to participate in the trend for sector consolidation.

The full report, "European Leveraged Finance Multiple EV-aluator", is available at fitchratings.com or by clicking on the link above. The report provides an updated analysis of European transaction multiples by sector, using data collected over the last decade to June 2015. It provides an overview of sector valuation statistics, changes in distressed multiples, and summaries of individual transactions on a sector-specific basis.