I'm looking at purchasing my family's business, which I've been managing for a while. I'm looking at possible deal structures and valuations and want to ensure that I am going down the right road.
The company is 35 years old and has always been profitable. It has consistently grown but not at a consistent rate. The average EBDITA over the last five years is $750K, with an after-tax cash flow of about $300K, including my salary (manager's) and the current owner's salary.
I expect it to continue to grow based on new products we have recently put out.
The offer I put forward is:
The total valuation is $4.5M, about a 6X EBITDA multiple.
Bank Financing: $4M Equity: $250K Seller Note: $250K
I'm also including a 10 years employment/consulting contract to the owner of $200K/year, having the owner still involved in the valuable company as he is the primary engineer.
This brings the total deal size to about $6.5M
When I run the numbers based on a 10% interest rate, the yearly debt service comes to just ~$800K.
From what I am seeing, this math doesn't work.
Am I off on my valuation? Is there a better deal structure that I am missing
If you think that you need the long employment contract, it sounds like you think the engineer position is necessary, so may be not a valid add back for you. 10yr too long, also won't work SBA if that's your intent.
If you take 3 to 4x your $300k...that would only be $900k to $1.2M EV. Try running your numbers with that to check DSCR.