S&P 500 Enterprise Multiple 1990 To Date

S&P 500 Enterprise Multiple

S&P 500 Enterprise Multiple 1990 To Date by Tobias Carlisle, Greenbackd

I like to check in occasionally to see where the S&P 500’s average enterprise multiple stands. Right now it’s trading on just over 12x, where it’s been since the start of the year. It’s rarely been this expensive. Indeed, the average for the full period is 10.4, and it’s only exceeded this level in the late 1990s and briefly in the early-2000s.

The chart below shows enterprise value/trailing EBITDA for the S&P 500 for the period 1990 to date:

The chart below shows enterprise value/trailing EBITDA for the S&P 500 for the period 1990 to date compared to the S&P500:

S&P 500 Enterprise Multiple

One thing clear from the charts is that the level of the S&P 500’s enterprise multiple is not particularly predictive of anything. Sure, it peaked in 1999 along with the market, but it also bottomed in late 2011, while the market bottomed in early 2009.

I prefer to use it as a rough estimate of the likely upper end of valuations for my basket of stocks. While they aren’t directly comparable (the acquirer’s multiple uses enterprise value-to-operating income, not EBITDA), they are close enough. The median of the stocks in the Large Cap 1000 screener currently sits around 7.9x (the most expensive sits at 9.3x, and the cheapest at just over 5x). That’s plenty of room for bigger acquirers to pay a premium and take them out.

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About the Author

Greenbackd
My name is Tobias Carlisle. I am the founder and managing member of Eyquem Investment Management LLC, and portfolio manager of Eyquem Fund LP. Eyquem Fund LP pursues a deep value, contrarian, Grahamite investment strategy based on the research featured in Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (hardcover, 288 pages, Wiley Finance, December 26, 2012), and discussed on Greenbackd. I have extensive experience in activist investment, company valuation, public company corporate governance, and mergers and acquisitions law. Prior to founding Eyquem, I was an analyst at an activist hedge fund, general counsel of a company listed on the Australian Stock Exchange, and a corporate advisory lawyer. As a lawyer specializing in mergers and acquisitions I have advised on transactions across a variety of industries in the United States, the United Kingdom, China, Australia, Singapore, Bermuda, Papua New Guinea, New Zealand, and Guam, ranging in value from $50 million to $2.5 billion. I am a graduate of the University of Queensland in Australia with degrees in law and business (management). Contact me I can be contacted at greenbackd [at] gmail [dot] com. I welcome all feedback. Connect on LinkedIn, where we’re Friends.