Any insight or experience to share over realistic multiples & risks?

by a searcher

2 years ago

The acquisition target is in the construction industry and all revenue is project-based. 

2021 revenue of ~$1.2m 
2021 SDE of ~$400k

Rev and SDE History
2018 Rev and SDE average year
2019 Rev and SDE great year
2020 Rev and SDE good year
2021 Rev and SDE average year (but declines in both Rev and SDE compared to 2020 and 2019)

I believe a 2X SDE multiple is appropriate for a sub $1.5m company in the construction industry and with a 37% revenue decline and a 45% SDE decline compared to 2020.  

The broker wants to use a weighted average of the past four years' SDE (equal to almost double 2021 SDE) and apply a 3.7 multiple. 

What are your thoughts on valuation and what should I be watchful for overall in a situation like this? 

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11 comments

searcher

^Searchfunder member‌ - excellent consideration point! Thankfully, I am all Aces in that area.

2 years ago | like reply | 0 likes

searcher from Ivey Business School at Western University

All of the comments above have good merit on valuation. I think even before valuation becomes a topic, you should consider if the construction business is an area you have competitive expertise in or a passion for. Execution risk is much higher for such a small business vs. anything you can financially model or pay for.

2 years ago | like reply | 0 likes

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