Hello,
Im looking to find some better data on sale for custom cabinet business. Looked at the transaction tool on here and have some ideas. He is the rub, the company does about half as a contractor and half as a manufacturer. Furthermore the deal has to be done with the real estate. SDE is around 800k, the real estate purchase would drop the SDE down to sub 500k probably closer to 300k ebit.
Their ask is irrelevant as that number doesn’t count the sale of the land even though they require it.
Seems like most deals out there are based on ebitda, and not ebit. This is a machine heavy business so depreciation really inflates the numbers. Ebit, valuation to me feels like it should be in the 2 to 3 range at most, but was hoping for some insights or data sources to help construct an offer that I can hopefully do my best to educate the seller with. It is a shot in the dark and I’m good on the long real estate play with this business.
Custom cabinets and kitchen contractor
by a searcher from The University of Arizona - Eller College of Management
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We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.
For some searchers, myself included, buying real estate along with a business doesn't align well with our goal for entrepreneurship through acquisition for some of the following reasons:
-It ties up capital and allows you minimal control to increase value; the very reason many of us move from RE to ETA is the ability to control your own destiny through Profit x Multiplier.
-Along the same lines—ties up the business's cashflow that could have been used for business expansion and operation.
-Seems like a diversifying measure but just puts all your eggs in one basket—if there are issues with the RE it will complicate things with the biz and vice versa.
-Management of the property in addition to management of the business.
Those are the negatives, obviously there are many positives as well—equity building, tax benefits, control, and stability to name a few.
If you determine that you want to move forward with a business and its real estate, you need to then value them separately so you can get comfortable with what it is a) worth to the market, and more importantly b) worth to you.
It sounds like you're comfortable enough with getting to a valuation of the business itself. On the RE value, learn all that you can about the real estate—mostly lot size, the condition and specs of any structures, and the zoning—and start running comps on similar properties that have recently sold (see Zillow, Realtor.com, Redfin, LoopNet, CREXi).
This should give you a pretty good idea of what the business and real estate are each worth—add them together and you have the ballpark purchase price. Now it's up to you to determine if it's an opportunity you're interested in pursuing based on the real estate's carrying costs and headache factor versus the benefit you'll gain from owning the business and property. If it's worth it, you should feel comfortable enough at this point to put together an LOI. If it's ultimately a pass, it's still sort of a fun exercise.
Side note—Recently I have been very interested in the idea of submitting 2 offers at the same time. It would be interesting to submit one offer that includes the purchase of the real estate outright, and then one that just includes the purchase of the business but includes an accompanying lease agreement proposal outlining the financial benefit the owner could reap while still maintaining ownership of the property.