The economy roared back in the third quarter, thanks to an “open” economy and record Government stimulus. Advanced estimates of the quarter’s GDP reached 33.1%, approximately twice the previous record. However, the output of the US economy still trails pre-pandemic levels, and there remains considerable uncertainty: Congress failed to pass additional stimulus in the third quarter and may not do so in 2020, and COVID-19 cases are reaching new highs that could cause more “closing” of the economy.
There was a flurry of positive economic developments during the quarter, including continued job growth (and resulting lowering of the unemployment rate) and a pledge from the Federal Reserve to keep interest rates low for at least three years. Equally, there are mounting concerns absent fiscal stimulus, primarily by means of increasing permanent job losses and other job-related concerns.
Despite this mixed outlook, the stock market continued to expand during the quarter, with major indices gaining anywhere from 7.5% to 11%. Certain industries continue to thrive or dive in the current climate: for example, technology companies have thrived, while energy companies have struggled.
Valuations of public companies have increased significantly during the quarter. Our analysis of food and agriculture companies shows that the median multiple of EBITDA for a publicly traded company increased from 13.5x in Q2 to 17.6x in Q3, an increase of 30%. Healthcare (increased from 13.7x to 15.7x), Industrials (increased from 11.2x to 13.7x), and Technology (increased from 21.5x to 22.3x) experienced similar valuation multiple improvements over the quarter. As we’ve discussed previously, part of this is due to stock market valuations improving based on positive outlooks despite declines in earnings in the recent quarters.
To read more about the economy and public market activity during the quarter, read our Third Quarter 2020 Economic & Public Market Update. Be sure to also check out our recent reports on third quarter Mergers and Acquisitions (M&A) and Financing activity. To receive future updates, be sure to subscribe to our newsletter below.
If you have any questions regarding broad capital markets activity, activity within your industry or geography, or options for your business, please contact us.