Business owners frequently ask themselves, “What’s my business worth?” The short answer: it depends on who’s buying.
Strategic buyers and financial buyers will often value the same business differently, a situation driven in part by synergies and hurdle rates (the buyer’s required rate of return on acquisitions). One report recently analyzed the selling price of manufacturing businesses purchased by private equity firms, which can help owners peg the potential value of their business. Here’s the good news: multiples are up. And the bigger the business, the higher the multiple.
According to the report, businesses generating EBITDA — which are earnings before interest, tax and depreciation — in the range of $1.5 million to $4 million were sold for $10 million to $25 million. That’s an average EBITDA multiple of 5.8 times and about 1 times revenues. Businesses with EBITDA of $4 million to $8 million supported an average multiple of 6.2 times, selling between $25 million to $50 million. The average EBITDA multiple for sales in the range of $50 million to $100 million was 7.3 times. And for those in the range of $100 million to $250 million, the multiple rose to 7.7 times. Add-on transactions, where the buyer is adding the acquisition to a business in its portfolio, boasted a slight 5 percent to 10 percent premium, driving the EBITDA multiple in a $25 million to $50 million transaction to 6.5 times.
It should be noted that these implied EBITDA multiples are averages, across hundreds of transactions. The appropriate multiple for any business will only be determined through a competitive sales process. But the averages are useful data points. Since 2013, the value of manufacturing businesses, based on implied EBITDA multiples, has trended upward by about 20 percent. So, what’s fueling these higher implied EBITDA multiples?
Read the full article in Manufacturing.Net.