Are offers based on revenue, SDE, cashflow or Ebitda?

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September 15, 2022

by a searcher from Indiana State University in Chicago, IL, USA

Hi Team
i want to confirm what others are seeing or recommendations from owners in terms of the multiplier.. Are you experiencing that owners are using the revenue as the base number for the multiplier vs ebitda etc? I’m working on a deal and the owner is using revenue which was a shock to me.
Any advice would be appreciated

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commentor profile
Reply by a searcher
from Tufts University in Jersey City, NJ, USA
As others have said, industry and context matter but EBITDA at an industry-appropriate multiple is usually the way to go. SDE (obviously at a lower, appropriate multiple) would really only make sense if you're looking to be a long term keyperson/employee of the business and therefore can justify thinking in terms of SDE rather than EBITDA when deciding how you'll arrive at ROI, however that goes out the window if you're drawing outside capital (an investor isn't going to want you valuing a business based on how much it pays YOU).
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Reply by a searcher
from The University of Chicago in Chicago, IL, USA
Depends on the industry. As Ron said, in situations where COGS are very consistent you'll see rev. multiples. You'll also see it in situations where strategic buyers are very common - they don't care about the cost structure so much (as they'll have their own team), but just the book of business they are buying. Finally, I'll add that when owner's typically think of the size of their business, they usually think of it in terms of revenue. So, if there isn't an intermediary, that might also be what's going on.
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