Valuations of both public and private companies shot up in the course of last year, according to research from accountancy firm BDO.

Valuations of both public and private companies shot up in the course of last year, according to research from accountancy firm BDO.

The average price/earnings multiple of London-listed companies rose to 15.1 in the final quarter of 2009. That was 78 per cent higher than the figure recorded at the end of the first quarter, and the highest level since the peak of the mergers and acquisitions (M&A) boom in 2007.  

Private companies are now selling for 11.9 times profits, the highest level since early 2008 and an 18 per cent increase over the last three quarters. Where private equity buyers are involved, the figure is 12.0 times earnings.

Christopher Clark, M&A partner at BDO, says, ‘We’ve seen a pretty dramatic recovery in public market multiples, particularly during the second half of 2009, as well as a mini-recovery in private company valuations.

‘This is due to rising public company valuations giving buyers greater confidence to pay higher prices, a lack of supply of quality assets and a pent-up supply of private equity capital.’

But Clark adds that credit is still expensive and only available for ‘the very best assets.’ That explains why private equity firms, which depend on debt, are unable to pay much higher prices than trade buyers, which are better able to ‘extract operational synergies from acquisitions.’