CURIOUS TO GET YOUR THOUGHTS ON VALUATION

October 28, 2020

by a searcher from University of Pennsylvania - The Wharton School in Miami, FL, USA

Hello Folks-
I am would be very grateful to receive as many VALAUATION data points as possible for the following deal. I know the info is limited, but please give me your best guess at multiple /value for this business!!!!

Niche Consumer Product
Low growth, old school biz with old school operation
Niche manufacturing
Total addressable market small but very consistent
Revenue ~ $3.1M
EBITDA ~ $600K
Low w/c requirements

Many thanks!

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Reply by a searcher
from Universidad Internacional del Ecuador in Cuenca, Ecuador

Very hard to determine the valuation with that info alone. Howver, I think you'll find that most companies in that Ebitda range command anywhere from 2x to 3.5x depdending on many factors. I wouldn't focus solely on valuation though...focus on and try to get the seller to share the risk (provide a seller note for x % of asking price). This will limit your risk which is another important factor in determining a valuation, and will "force" the seller to be committed to the success of the company post sale. I see too many searchers striving to find and "close on" the perfect company. There is no such thing. Focus instead on searching for and pursuing companies that have very little downside, while limitting your exposure.

Reply by a searcher
from Tufts University in Los Angeles, CA, USA

At this size, the stability and predictability of cash flows are more important than industry. I could see it going for as high as 3.5x to 4x if the business is a cash machine and generates positive cash flow every month. In order to do so it would have to have very attractive distribution and material sourcing agreements in place, a mostly non-specialized workforce, etc.

For a seasonal business with more ebbs and flows to the cash flows and a high capacity for things to "pop up," 2.5x to 3x is probably a better range. However, keep in mind that highly seasonable businesses can still be a great deal if they're being sold immediately prior to the high season.

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