Add-on acquisitions with weak EBITDA Margins

by a searcher

1 year ago

I have been looking at add-on opportunities, and the competitors interested in selling have traditionally not had very strong EBITDA Margins (4%-8% adjusted EBITDA Margins going back to###-###-#### I'm inclined to offer 1X or maybe 1.5X EBITDA on these businesses...but I'm wondering why a seller would even entertain such an offer? They could make that much in drawing an officer salary for two years... definitely not worth retiring for.

How do these businesses ever exit?....do they just never sell and eventually shut down or get passed on to family members to run?

0 likes
157 views
14 comments

searcher

Growing a business from 6% EBITDA to 20% EBITDA is not easy. If it were that easy, the seller would have done it - or at least gotten it to double their existing EBITDA. So this will require investment (time, effort, capital) from the new buyer....why pay someone 4X when you have to do all the work to make it a healthy business?

1 year ago | like reply | 0 likes

searcher from Lamar University

Echoing the above, the motivation of the seller is important to understand. Perhaps no succession planning, desire to pursue other ventures, and even old age amongst others can be drivers for an operator looking to exit. You mentioned 1x to 1.5x EBITDA multiple, but I would be curious to learn the Rev multiple and industry as well. Great comments above in relation to the synergies that you can realize.

1 year ago | like reply | 0 likes

More on Searchfunder

Just Closed on My First Deal! Reflections and Takeaways for other Searchers

45,152 transactions are available on Searchfunder (now searchable by keyword)

Now everyone has unlimited IBISWorld access

Family office looking for traditional searchers

Examples of self-funded searcher websites

Investor seeking Self-Funded Search Deals

What are market terms for Seller Notes?

2 Best Ways To Find Motivated Sellers, Off-Market Deals

Searchfunder is an online community and toolkit for searchfunds. Over 80% of those involved in searchfunds maintain a Searchfunder.com account to help them network, problem solve challenges, and keep up with the industry.

We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.