Although public company valuations have fallen substantially in 2008, Regent's price to earnings (PE) ratios have remained reasonably consistent for the past few years. Indeed they staged a small recovery in Q2 2008. It should be remembered, however, that the components of value are quite different between public markets and acquisitions. With the former, the institutional investors are looking more to the short term and are seeking liquidity amongst the small cap stocks. Whereas with acquisitions, the cash rich trade and private equity buyers are investing more strategically and for the longer term. The price to sales (PS) ratio has displayed greater volatility ending the half on 1.30.
Outlook?
Whilst it is clear that deal activity peaked about a year ago, Regent did say that acquisition activity would remain high even in difficult economic times. However the resilience of deal flow and valuation levels has been surprising given all the economic gloom around. A serious economic recession or major collapse of the stock market will eventually apply a serious drag on activity – but there are still no signs of that. Cash is the driver, and although the banks and consumers may be running short, the technology trade and private equity guys have plentiful supplies at present.
Note – the recorded valuations include 50% of the maximum contingent consideration in deals with earn-outs and apply to historic performance.
or email Peter Rowell - prowell@regent.com
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