I’m in need of some advice on the way the market values a certain type of privately held business. Who among the AFers knows how this works? Is there a BValGuy?
What’s the size measured by EBITDA?
It’s a mom & pop business so raw earnings aren’t a good metric to look at imo – lots of unrelated stuff goes through the IS. my feeling is the buyer would underwrite their own expenses or perhaps apply industry expense ratios, but i could be wrong . Gross sales are around $20 MM. It’s a small fish that fills a niche among some much bigger players. I think a normalized profit margin would be around 40-50% if i had to put a wild guess on it.
Very low multiples with usually a 2-3 year retainer where key players continue to work through transition. These rarely go well because of the high levels of human capital involved in the proprieters.
2-3x sales in the ballpark? Doesn’t go well for whom?
If you think they are making $10 million net, then it’s probably something like 5x or 6x earnings. At that point, they are not a very small business any more. For real small businesses, like a couple of restaurants kind of stuff, the multiple is much lower, since a lot of the value is from the owner doing work himself.
You can go on BizBuySell or some website and look at where people are trying to sell that sort of business. It’s been pretty useful for me in the past.
Otherwise, it is good to see that the crab rangoon business has progressed.
Sales multiple will depend on margins, business model, assets, etc. Typically don’t go well for buyer. I’ve just seen a couple of people (my Dad, his friends) who all had smaller businesses that were bought out most of the transactions were either reversed with breakup fee or just generally flailed given the inability of new management to really manage the gap left by prior owners.
Turd Butter been very very good to me.
j/k. This is my FIL’s business. basically 100% human capital and organizational/operational know-how. Typical contract is ~$2 - 5 MM over 1 - 3 years. I could see a smart buyer attaching some strings to the sale.
He’s received some unsolicited interest and doesn’t know what a market # would be.
When did we get upvotes and downvotes? I’m out of the loop.
Edit: Real mature guys…
Earnings are what it will be bought at. The market adjusts the things you are talking about with add-backs. Add-backs are also a point of haggling with a deal, along with the multiples. $10MM earnings is not a very small business, so the typical PE multiples should be good.
https://pitchbook.com/news/articles/detailing-the-us-pe-industry-in-12-charts
Are there brokers for these kinds of deals, or maybe like a kpmg that could give an opinion of value? Worth the $?
good info thanks! Any idea if they publish price multiple by deal size range?
…just saw the link to download the full report. I’ll check there.
For small scale I think you’re looking for a false sense of precision. It’s a highly illiquid asset so it’s more about finding someone willing to buy it and finding out how much they’ll pay. You take a hit given the illiquid nature, risks and lack of alternative buyers which means your fallback is typically just liquidation at retirement.
i know what you’re saying but it’s good to have ammo.
Are we able to see if our own comments have been upvoted or downvoted?
Personally I had to unhide your shtposts since so many people voted it down.
Lol, STL’s post is the first one to get hidden for downvotes.
Are you planning to buy a pizza shop…in dc?
how do we do this upvote down vote things?
a personal friend of mine is a broker for small businesses. think 200k+. there are also a lot of places that try to value these busineses. but these opinions are pretty meaningless for the most part since businesses are only worth what people are willing to pay for, and some are just justification for taxes. For the most part, id be careful with any fin info posted. there is a lot of pretty crappy financials and projections. 50% margins sound ridiculous, just my opinion. most these places has a net margin in 15% to 25%.