Brokered Business
December 13, 2020
by a searcher from Stanford University - Graduate School of Business in Dallas, TX, USA
Anyone have experience/tips for negotiating down SDE multiple and add-backs of broker listed businesses?
December 13, 2020
by a searcher from Stanford University - Graduate School of Business in Dallas, TX, USA
Anyone have experience/tips for negotiating down SDE multiple and add-backs of broker listed businesses?
from Babson College in Boston, MA, USA
Three points. (1) Be a sifter, not an alchemist...don’t waste time educating sellers about market pricing. (2) Avoid “one-itis” by having other deals near-LOI in pipeline. Walk away politely as soon as another deal shows more promise of closing under acceptable terms. (3) Ensure your pricing multiples reference is current market...notably the GSB 2020 study shows prices at 5-6x EBITDA while commonly used guides list 4-5x. Talk to other brokers you don’t have direct business with.
Lastly, non-business add-backs are obvious, non-reoccurring expense add-backs could be professionally subjective. Sellers who argue non-business add-backs that are truly business expenses are dishonest, and you’re better moving on. That’s easier said than done if your funnel isn’t full. Build the funnel, avoid “one-itis”, be a sifter, not an alchemist.
from University of Virginia in Salt Lake City, UT, USA
1. I show them the range of comparable companies having done some analysis using the DealStats database. This anchors the conversation around a reasonable range and helps move toward a discussion of "what makes this company above average?", which can still be a positive one.
2. I'm less interested in a change in multiple of ~0.5x, which I'm guessing is the range you could reasonably argue someone down. My thesis isn't to buy low and sell high, but to add value to the business itself, to the point where a marginal shift in the multiple is less relevant important than just getting the deal done.
3. For addbacks I would get a third-party accountant. I am using a younger guy who worked at KPMG for 5 years. I trust the quality of his work and he has credibility, but he is also fairly cheap.