SMEs are often faced with the question: ”What is my company worth?“ This question is of central importance across industries — whether in the context of a succession of a company sale or financing options. In recent years, the framework conditions for company valuations have changed significantly. The following article highlights which influencing factors The valuation of medium-sized companies determines how the Assessment level Has recently developed and dares a outlook with forecasts for the coming months.
Factors influencing business valuation in SMEs
Several factors determine how highly a medium-sized company is rated. The most important influencing factors include:
Interest rate level and economy: The general economic environment plays a decisive role. Rising interest rates in 2022 and 2023 increased capital costs (discount factor) and thus depressed the valuations of many companies. For example, as a result of high inflation, the IDW base interest rate relevant for valuations in Germany rose to 2.75% by January 2024 — the highest level since 2014. Conversely, falling inflation with falling key interest rates is leading to relief: in 2024, the ECB began to lower interest rates again for the first time, which reduced financing costs and tended to promote higher company values. At the same time, economic downturns and recession fears are making it difficult to agree on a purchase price — in uncertain times, buyers and sellers find it difficult to agree on a company value.
Capital market and investor pressure: The availability of capital and transaction market sentiment significantly influence the valuation level. In recent years, financial investors (private equity) sat on large stocks of capital (“dry powder”) and were under pressure to invest this money profitably. This oversupply of investors willing to buy led to competition for attractive targets — which drove purchase prices. For example, private equity funds recently paid higher multiples on average than strategic buyers, which pulled the market upwards. At the same time, financing conditions have improved somewhat again since the end of 2024 (including due to lower interest rates and more absorbent credit markets), which also enables higher purchase prices. However, a worsening financial situation (e.g. when banks become more careful) can reduce the scope for high valuations just as quickly.
Industry and company specifics: Industry trends and the individual situation of the company remain key value drivers. There have been major differences between sectors in recent years. Resilient growth areas such as technology, software, medical technology or healthcare often achieved high valuation multiples, fuelled by strong investor demand for promising business models. Sectors such as renewable energies are also benefiting from a sustainability boom and were rewarded with high prices, although the market also calmed down sharply in 2024 and 2025. In contrast, industries dependent on the economy or under pressure (e.g. parts of retail trade or automotive suppliers) were confronted with valuation reductions and were sometimes sold as distressed cases. Finally, classic factors such as sales and profit development, market position, competitive advantages and the size of the company are also included in the valuation — these can vary greatly depending on the sector and business model.
Sustainability and digitization: Non-financial factors are becoming increasingly important. Company valuations are shifting from a purely number-driven view to a more holistic perspective that also takes into account ESG criteria (environmental, social, corporate governance), digital transformation and the adaptability of a business model. Companies with a convincing sustainability strategy or digital innovation advantage can achieve a valuation premium, as investors see future potential in this. Conversely, technological disruption or failures in sustainability are increasingly leading to reductions in evaluation. In short: Soft factors — from brand image to workforce to climate strategy — are playing an increasingly important role in medium-sized corporate value.
Development of assessment levels in recent years
The past few years have been characterized by significant fluctuations in the M&A market and thus also in the valuation level of medium-sized companies. Until 2021, the market experienced a long-lasting upswing: Driven by cheap money, high liquidity and optimistic growth prospects, company values rose sharply. Many deals were concluded at historically high multiples. One indicator of this is the European Argos Mid-Market Index, which measures the average purchase price multiples for non-listed SMEs. At its peak, this index reached values of over 11 times EBITDA — an exceptionally high level that reflects the boom phase before 2022.
However, from the end of 2022, the pendulum flipped. The combination of abruptly rising interest rates, geopolitical crises and economic concerns led to a change in sentiment. Buyers became more cautious, and many companies felt headwinds due to higher costs (e.g. energy, materials) and uncertainties, for example as a result of the Ukraine war. During this phase, valuations came under pressure: Within three years, the Argos index fell steadily from 11.6× to just 8.9× EBITDA. Deals dragged on longer, and many sales transactions were postponed as the price expectations between sellers and buyers diverged. The general mood on the boardrooms and among financial investors was “very subdued” in 2023 — a climate in which significant valuation reductions became more frequent. In uncertain times, strategic buyers tended to pay less and increasingly seek favorable opportunities, while financially strong investors had money but were also more selective.
In 2024, there was a noticeable recovery in the transaction market — and with it a revival of valuations. Thanks to falling inflation and initial interest rate cuts, financing conditions improved and M&A activity among SMEs picked up again. In the third quarter of 2024, the Argos index finally climbed to a median multiple of 9.5× EBITDA — the first increase after a three-year decline. Private equity funds were now more aggressive than buyers again and paid significantly higher prices for high-quality companies (around 10.1x EBITDA on average), which significantly drove the increase in the overall market valuation. Strategic buyers increased their multiples only slightly (to around 8.8×), but also benefited from the overall improved situation. The purchase price range between high-rated and low-rated deals began to normalize somewhat: The share of transactions with extremely low multiples below 7× declined significantly as a result of the market recovery.
This positive trend continued towards the end of 2024 — the Argos index continued to rise in the fourth quarter to around 9.8 × EBITDA. This was supported by an increase in transaction volume (≈13% more deals in 2024 vs. 2023) and a resumed LBO business. At the same time, the market benefited from falling capital costs, as inflation fell towards 2% and further interest rate cuts were expected from the ECB. However, experts have already warned that the persistently fragile macroeconomic environment — weak economic growth, political uncertainties and geopolitical tensions — is limiting the recovery and not a complete boom.
In fact, there was a slight cooling in the first half of 2025: New factors of uncertainty (such as burgeoning international trade conflicts) once again dampened sentiment. As a result, the Argos valuation index fell slightly again to around 9.2 × EBITDA by the second quarter of 2025. This correction shows that the market recovery is fragile. Strategic buyers in particular acted more cautiously, whereas financial investors were able to largely maintain their valuation levels. The market therefore remains volatile — small shifts in the environment can quickly be reflected in SME valuations.
Forecasts: Where are company valuations heading?
What's next? Even though no one can predict the future precisely, some forecasts can be formulated for medium-sized company valuations based on current data and trends:
Sustainability and digitization: Non-financial factors are becoming increasingly important. Company valuations are shifting from a purely number-driven view to a more holistic perspective that also takes into account ESG criteria (environmental, social, corporate governance), digital transformation and the adaptability of a business model. Companies with a convincing sustainability strategy or digital innovation advantage can achieve a valuation premium, as investors see future potential in this. Conversely, technological disruption or failures in sustainability are increasingly leading to reductions in evaluation. In short: Soft factors — from brand image to workforce to climate strategy — are playing an increasingly important role in medium-sized corporate value.
Recovery of M&A activity expected: Many signs suggest that 2025 will bring lively transaction momentum in SMEs. Following the slight “deal backlog” of previous years, market observers expect up to 20% more small and medium-sized corporate transactions compared to 2024. A higher number of deals also tends to mean more competition for good targets — which should support valuations. The need to grow (keyword: economies of scale) and the pressure for digital transformation are either forcing many SMEs to make acquisitions or turn them into takeover candidates themselves. This strategic momentum is likely to keep demand for solid medium-sized companies high.
Stabilization through financial framework conditions: Key financial figures are developing cautiously positively. Inflation is on the decline (at least in Europe), and further interest rate cuts by central banks are within the realm of possibility. If interest rates continue to fall, this reduces capital costs and mathematically increases the present value of future income — a clear valuation driver. In addition, a lively debt capital market (banks and debt funds are once again showing more appetite to lend) is improving the financing of takeovers. All of this suggests that sustainable companies can continue to achieve reasonable to high multiples in the future. However, this is a slow process: As long as the overall economic environment remains characterized by moderate growth and risks, valuations can only be expected to rise moderately.
Uncertainties remain a risk factor: Despite all hopeful signals, the market remains fragile. Geopolitical tensions (such as trade conflicts or regional crises) can shake trust at any time. Internal challenges — such as political instabilities in individual countries or rising inflationary pressure — could also unsettle investors. This cocktail of uncertainties means that buyers remain picky and only pay top prices for really convincing targets. Overall, it is expected that the currently relatively high purchase prices could come under pressure if corporate profits stagnate or decline. Many SMEs are already feeling declining momentum in their business — falling earnings would reduce the valuation basis and reduce multiples. In short: The target's earnings prospects must be right, otherwise discounts will be required.
Focus on quality and sustainability: Experience shows that investor demands increase in uncertain phases. In the coming months, it is expected that high-quality companies in particular — for example with crisis-resistant business models, technological leadership positions or strong brands — will continue to achieve high ratings. Private equity funds still have plenty of capital and pay top prices, especially for “pearls” that are robust even during downturns. Companies that also score points in trending areas such as digitization or ESG can expect lively interest. Average companies without a particular USP, on the other hand, will probably have to make do with more cautious bids. This focus on quality is likely to widen the gap in the market: Top companies receive multiples at the top end of the scale, while weaker companies will have to accept significant valuation reductions.
Conclusion
In summary, a cautiously more optimistic View appropriate. Valuation development appears to have bottomed out, but a brilliant new boom is unlikely. Rather, forecasts point to a fragile upturn: There will be opportunities to buy or sell strong companies at reasonable prices, but the market will remain vulnerable to disruptions. For entrepreneurs, this means following developments closely and positioning themselves flexibly. With realistic price expectations, solid business figures and a clearly communicated future strategy, attractive corporate values can be achieved even in turbulent times — advised by experienced M&A experts who help to correctly classify all influencing factors. Because finding value in SMEs remains a demanding task that requires sound analysis and tact — today more than ever.
The facts and figures referenced in this article are based on current market studies and expert analyses, including the Argos Mid-Market Index (as of Q2 2025), industry observations from leading consulting firms, and insights from the Kleeberg Annual Review of Business Valuation 2024.
Jahresrückblick 2024: Entwicklungen in der Unternehmensbewertung -Valuation Kleeberg
Outlook for the German M&Amarket in 2025
Mid-market Argos Index® for thesecond quarter of 2025 | Argos
