What a difference a year makes. A year ago the industry was celebrating the record year of 2008, which concluded with 307 total transactions. Valuations were still high, but the red flags were flying high and mighty, pointing to a much different year for 2009.

Those warning flags were accurate. During 2009, the total number of announced transactions decreased to 185, or 40 percent from the prior year. More importantly, how did pricing hold up compared with the historic highs we saw from 2006 through 2008? To listen to some industry pundits, it would seem that valuations dropped as quickly as the stock market in early 2009. While pricing did decrease, it was not nearly as severe as some had predicted. Although the days of 7 to 8 times EBITDA (income before interest and taxes and depreciation and amortization) upfront are over for most firms, a closer look at 2009 will show that not only was the year not as bad as it could have been, but there are signs of positive trends as we enter the new decade.

From a pricing standpoint, due to multiple factors–including the worst economy since the Great Depression, a soft market, frozen credit markets, and concerns about the impact of healthcare reform–transaction multiples did decrease for the
average agency, but primarily in the amount of guaranteed money paid at closing. The overall deal multiple, which includes the earn out, did not change as significantly.