How do you value Recurring contracted revenue and project-based revenue wit

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April 17, 2020

by a searcher from Rutgers, The State University of New Jersey - Camden in Tampa, FL, USA

How do you value recurring contracted revenue and project-based revenue within the same company?

Example: technology-enabled, solutions & managed services provider.

Well-run business, no one customer represents more than 25% of revenue, unaffected earnings or are negative impacts expected thus far given the pandemic environment, closed expected Q1-2020 sales, and forecast for the balance of the year will show a conservative 13% revenue increase.

2019 Revenue = $21M 2019 dollars Adj. EBIDTA = $2.2M $6.3M is contracted recurring support revenue (contracts go from 2-5 years), managed services. $14.7M is services/project-based revenue. 65% of the customer have been renewing project-based work for the past four years.
I realize there’s more detail required to come up with actual EV. Such as debt, a balance sheet that sort of thing, but what’s your thumb rule, what necessary calculations do you apply to the scenario?

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Reply by a searcher
from Babson College in Boston, MA, USA
Sounds more like consulting than tech-enabled, yes/no? Rev concentration by EE: who owns the relationships, 2-3 sales people, the owner, a mix? Plenty of “AI,” and “SaaS,” deals being marketed as technology, but peeling back revenue shows very little IP, just reselling licenses and consulting. EY-Parthenon has solid preliminary diligence materials service deals like this; revenue overview above doesn’t warrant a pre-corona software multiple, let alone now. If you’re in an auction you can probably nudge the Intermediary a little
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Reply by a searcher
from London Business School in London, UK
Agree that those cash flows should be valued differently, if you're looking for a rule of thumb I'd look to allocate costs and estimate EBITDA for each of the two parts of the business and use different multiples, indicatively something like 4x and 6-7x. Need to obv consider growth (sounds quite high), margin (sounds quite low) and other factors
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