Applying Multiples with FF&E

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by a searcher from Northwestern University - Kellogg School of Management
in Tampa, FL, USA

9mos ago

Applying Multiples with FF&E

I'm running into two different scenarios when it comes to asking price/valuations and FF&E. I'm seeing sellers or brokers applying a lower multiple, then layering a high value FF&E on top of that to justify the asking price. My understanding was the total value of the offered FF&E was included in the application of the multiple - not layered on top after the fact. For context, these are smaller businesses with SDE just under $1M. e.g. I am calculating a ~4-5x for a home service company based on their math, and they are positioning it as ~3.5x with $700k of FF&E. Any advice on the best way to go about this (or how lenders or a deal team would approach it)?

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reply by a professional 9mos ago
from University of Akron in Charlotte, NC, USA

Usually FF&E is including in the purchase price. The concept is you are buying the assets you need to run the business as is and that has produced the SDE which the sales price is based on. Remember, you as the buyer have way more power in this situation. You can walk away and find a different/better deal. It's only an asking price. You must value the business based on what you feel is right. The multiple has an inverse relationship with risk. Risk is pretty subjective. Value is subjective. Decide your value independent of whatever a broker puts on it especially since they are incentivized to get a larger sale price. 2 businesses in the same industry with the same SDE don't mean they have the same value or deserve the same multiple.

reply by a lender 9mos ago
from California State University, Sacramento in Seattle, WA, USA

And from an SBA lending perseptive, the entire purchase needs to be able to debt service. So regardless of the smoke and mirrors on price+equipment, your lender is going to look at the company’s ability to afford the requested debt on entire price. This is also the same for inventory…you need to be able to afford the debt for buying the fully functioning company. redacted