Asset Heavy V Low Profit - Business Valuation (UK)

by a searcher from INSEAD

4 weeks ago

Hi Searchfunders.  I've been looking a number of businesses with strong Assets on their BS (Haulage & Manufacturing etc) but in comparison fairly low Adj EBITDA.  These are equity deals so not interested in just an Asset purchase but even with a Multiple and NAV these businesses are valued well below the Sellers expectations.    With Depreciation and Capex expectations taken into consideration and a good business plan in a good market its still hard to see any value from the Financials. 

Any thoughts on at least a Platform for valuation and then add the extras for business attractiveness etc... These are businesses circa £500K-max. 1.0M Adj EBTIDA with an Asset value of crica £2.5-£3.5M.

Thanks in advance for any comments advice.

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9 comments

searcher from Brigham Young University

Consider a hybrid valuation model combining NAV and adjusted EBITDA, factoring in the high asset base, but adjusting seller expectations with a focus on realistic cash flow generation potential.

3 days ago | like reply | 0 likes

searcher from London Business School

Have seen similar situations where working capital cycle is lengthy …. Sellers will want fair value for the assets plus some kind of notional amount for goodwill but it still has to stack up in overall EV/EBITDA terms.
I would be interested to hear if you come up with a solution - I wasn’t able to.

3 weeks ago | like reply | 0 likes

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