Agreeing on a multiple

by a searcher from IE Business School

3 years ago

Hey everyone, 
I am getting close to signing an LOI for a deal but we need to first agree on a multiple of EBITDA and if we take an average of the last 5,4,3,2 or solely last years EBITDA. Wondering what you guys have used to value the business in terms of multiples, and then if you use last years EBITDA or an average?

1 like
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20 comments

searcher from Ferris State University

IMO, the###-###-#### numbers are the most important to look at. If it's higher than pre-COVID, there is no guarantee it will stay that way if COVID subsides. If it's low, but was high previously, you should be able to offer a lower multiple because it might not recover to pre-COVID levels.

3 years ago | like reply | 0 likes

searcher from University of Southern California

I would take a step back and understand the revenue drives and customer relations with this business. If its a recurring revenue company, you are only as good as your last months MRR so to speak, so TTM is good unless there is significant COVID help which will flatten (pending type of biz). If its a non contractual business, TTM is still important but you can either base it off TTM if that is 'important' to the Seller and use a lower multiple or keep the multiple where the Seller feels they are being valued fairly and then stretch the TTM to be 1-3 or 1-4 years to back solve where you want to end up. Its more of an art...not science. This could all change however if you have an intermediary in Seller's ear, then you need to socialize more and more with the intermediary to see what they are pushing the seller to want. Good luck!

3 years ago | like reply | 1 like

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