Have people noticed that multiples have expanded significantly?
October 16, 2019
by a searcher from Harvard University in New York, NY, USA
Is it just me, or does anyone else notice in the past 6 months, that asking EBITDA multiples have expanded dramatically? Before, I was seeing plenty of stuff in the 3-4x range, and the small/low quality businesses asking 2-3x. Now, it seems like it's hard to find anything decent asking below 5x. Even the low quality ones are asking 3-4k. Am I alone in coming across this phenomenon?
from Grantham University in Naples, FL, USA
We are seeing this as well and I agree with Michael and Ken. Two potentials I am working on the Broker keeps pushing the 5x. I keep reiterating the difference between "asking" and actually "selling/closing". Ken is right on with his reply when it comes to getting it financed. Terrible expectations is a deal killer. When asked for proof that an equivalent sold for that multiple... eventually, it comes out as "Broker Hype".
Unfortunately, a lot of Brokered opportunities fail due to Broker "hyping up" the Seller for a certain multiple or number without educating the Seller as to what "range" the business, in its industry, in its area and its niche, "could", not "should", sell for,
I'm not sure if it's due to EOY and "momma needs Christmas gifts" or just uneducated greed.
Keep working the Seller even if through the Broker.
Also, a good book to "read" about negotiating is Never Split the Difference. I refer back to it on numerous occasions throughout negotiations.
https://www.audible.com/pd/Never-Split-the-Difference-Audiobook/B01CF5O89G?pf_rd_p=6a5ce8e4-798e-4a64-8bc5-71dcf66d673f&pf_rd_r=V853MCWVM956WSFEAQY6&ref=a_lib_c4_libItem_B01CF5O89G
from Carnegie Mellon University in San Jose, CA, USA