Financial Services Company EBITDA Multiples & Valuations: 2023
This report aggregates data on valuations for private financial services companies in the 2023 M&A market. We begin with some context on the market for buying financial services businesses based on conversations with bankers & M&A advisors. We then provide data on how companies in this industry are being valued, expressed as a multiple of EBITDA and segmented by business type.
The 2023 M&A Market for Financial Services Businesses
Since the early 2000s, the M&A market for financial services companies has been extremely strong, with only a brief lapse during the 2008 recession. But now, for the first time in recent memory, there is uncertainty among both strategics and private equity firms due to the federal interest rate hikes. Specifically the private equity industry, which relies heavily on debt, seems worried for the first time in recent memory. That makes sense, as their borrowing costs have recently doubled.
Still, cash flowing businesses are being sold at the same high valuations they were in 2021 & 2022. The difference has been felt in the number of deals being made. One advisor we spoke with said that if he used to see 10 bids in market, now there are closer to 5, and higher levels of diligence. On the positive side for owners, the M&A market is rather unforgiving towards acquirers: If a PE firm gets a reputation for not closing deals, they can be out of the deal business rather quickly. So the challenge for owners is more in getting the deals than closing them once they’ve begun.
Owners are also getting squeezed during the deal process – not on the multiple they were offered but on what constitutes EBITDA. (This is why having an M&A advisor advocating for you is crucial – see our latest article on the top M&A advisory firms.)
With the most aggressive acquirers putting the brakes on due to the borrowing uncertainty, sellers would be wise to run formal deal processes to get multiple bidders to the table. Whereas doing so might have brought 6-8 potential acquirers to the table a year ago, today it might bring 3, but that number still puts owners in a significantly better negotiating position.
EBITDA Multiples for Financial Services Businesses
Following are the multiples being paid for private financial services companies in 2023, broken down by business type and EBITDA range.
|Company Type||EBITDA Multiple|
|Wealth / Asset Manager||4.5x||7x||8.5x|
|Insurance Company – Commercial||6x||6.5x||9x|
|Insurance Company – Personal||5x||6x||8.5x|
|Credit Card Company||7x||8.5x||11.5x|
|Real Estate Investment Fund||6.5x||7.5x||11x|
|Private Equity Firm||7x||9x||11x|
|Venture Capital Firm||8x||9x||11x|
Selling a Financial Services Company in the 2023 M&A Market
Knowing the multiples acquirers are paying in 2023 is important. But there are many other factors to consider when approaching a potential sale. For instance, how do you know if the person negotiating your deal is getting you the correct valuation and deal terms? Would someone else have had access to more bidding parties, or get you more favorable terms? And what do you do if you’re down the road of closing a deal but the acquirer unveils new conditions that lower your ultimate valuation? Is there a way to bring the two sides together?
These are complicated questions even for businesspeople who had the level of success necessary to ask them. If you have any questions about selling, I am happy to take a few minutes to share my experience selling my businesses, owner to owner. You can reach out to me through this website or via e-mail below.