Amidst uncertainties regarding possible escalations in trade protectionism, stock market multiples decreased in the first half of 2018, with P/E multiples down 12.7% as compared to December 2017. On a year-on-year basis, we note a decrease of 11.3%. In general, the decrease is observed throughout all size ranges, but smaller companies exhibit a relatively stronger decrease in P/E ratios during the first half of the year.
Despite geopolitical issues and upcoming tighter monetary policies, we continue to expect demand for good assets and companies to remain very high.
The high level of demand continues throughout 2018, whether it’s large corporates with significant cash or private equity money seeking transactions. The abundance of private equity `dry powder’ sitting idly on the sidelines cannot persist indefinitely. M&A players are actively bidding up valuations even as companies are trading at historically high multiples.
Analysts expect the funding capacity to improve for both larger and smaller corporations, despite tighter monetary policy and interest rate rise. Economic fundamentals remain in good shape allowing corporates and private equity funds to increase their leverage capacity.
Forward multiples have decreased for all companies in the first half of 2018. The decrease is more pronounced for small and mid-sized firms (-15.0%) as compared to larger firms (-12.6%).
The graph shows trailing statistics for deals completed worldwide involving Belgian bidders. The deal flow continues to remain strong over the first half of 2018 after record-high levels in 2017, fueled by a high activity of private equity players in the market and Belgian corporates aiming to enlarge international footprint or technology-driven transforming through M&A. Mid-market transactions are continuing to be a driver of volume.
In this respect, we observed numerous deals involving private equity players like GIMV and Waterland. Some large Belgian corporations have also been particularly active, such as Bpost and Econocom.