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

searcher profile

December 26, 2021

by a searcher in Tampa, FL, USA

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?


0
11
224
Replies
11
commentor profile
Reply by a searcher
from Ohio State University in United States
If you’re too far away from seller’s expectations, don’t waste your time. On the other hand, if you never put in an offer, you’ll never know the seller’s expectations. Brokers are good temperature checks for seller expectations, but don’t let them steer you away from making an offer to start conversation.

other questions to answer:

1) can you protect yourself by structuring the deal under your terms
2) will a lender or whomever finance this transaction
3) what role do payment terms or project flow play in the higher valuation
commentor profile
Reply by a searcher
in Alpharetta, GA, USA
I don’t think 2x of trough SDE is any more realistic than 3.7x average over 4 years. It does sound like there is a lot of volatility in historical results which probably merits a lower multiple. Probably something like 2.5x the historical average is what I would be thinking. As I’ve posted before recently there is too much money chasing even small deals like this now, so just figure out what you think is the right number and stick to it. If no other buyer emerges your patience (and your price) will prevail.
commentor profile
+9 more replies.
Join the discussion