HOW TO THINK ABOUT VALUATION FOR COMPANIES WITH LARGE AMOUNTS OF INVENTORY/ASSETS

What is everyone doing for valuation when a company has 1-2x ebita in inventory or assets? The typical valuation model of 3-5x ebita or 2-3x SDE doesn't seem to capture this fully. For example the same business could be running with fully owned inventory, or on a business credit line. The payment towards the line would dent ebita but it would be a fraction of the inventory value.

I'm seeing sellers wanting to get a multiple of ebita/SDE plus something for inventory, as they see inventory as their stored cash. While that is true, the inventory is needed to generate the cash flow. Are other's seeing this and how are you thinking about it in terms of valuation? What conversations are you having with sellers about this, or do you simply move onto the next deal because the seller is irrational?



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