By deal size
There is a clear relationship between the size of the transaction and the size of the EV/ EBITDA multiple used to price the investment.
Higher priced transactions tend to take place at the larger end of the spectrum, in this case in the category of companies with Enterprise Values greater than USD 250m, which are attracting multiples of over 8x.
For instance, the average Debt/EBITDA ratio for US leveraged buyout transactions in 2018 is more than 5x (Bain & Company, 2019).
The size of investee companies is largely determined by the fund’s investment approach and fund size. Larger size funds will target larger companies with established market positions. Funds may also strategically target larger, later-stage companies with stable and sustainable cash flows, particularly during uncertain economic times.
The debt level in African private equity increases marginally with size, but doesn’t rise higher than 2x Debt/EBITDA. Compare this to the global norm, where Debt/EBITDA increases more quickly and to a higher level as company size increases. For instance, the average Debt/EBITDA ratio for US leveraged buyout transactions in 2018 is more than 5x (Source: Bain & Company, 2019).