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

by a searcher from Rutgers, The State University of New Jersey - Camden

4 years ago

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?

3 likes
143 views
3 comments

searcher from Columbia University - Columbia Business School

24-36 MRR

4 years ago | like reply | 1 like

searcher from London Business School

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

4 years ago | like reply | 1 like

More on Searchfunder

Just Closed on My First Deal! Reflections and Takeaways for other Searchers

45,152 transactions are available on Searchfunder (now searchable by keyword)

Now everyone has unlimited IBISWorld access

Family office looking for traditional searchers

Examples of self-funded searcher websites

Investor seeking Self-Funded Search Deals

What are market terms for Seller Notes?

2 Best Ways To Find Motivated Sellers, Off-Market Deals

Searchfunder is an online community and toolkit for searchfunds. Over 80% of those involved in searchfunds maintain a Searchfunder.com account to help them network, problem solve challenges, and keep up with the industry.

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.