how would you value this distribution company?

by a searcher from The University of Chicago - Booth School of Business

4 years ago

distributor of name-brand building products to contractors and construction companies (commercial construction not residential).  HD Supply Holdings, Inc. (NasdaqGS:HDS) and other public comps trade 9x to 10x EBITDA.  obviously, this business doesn't justify that, but the company is high quality and very steady cash flow.  SDE $1.5M.  EBITDA $1.2M.

Is 5.0x EBITDA too much for the business?

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7 comments

searcher from Manhattan College

The common theme is that the numbers have to make sense for you. Worked on a $5M deal via SBA and it was an ordeal. Once we drilled down on the financials, the value of the deal collapsed. The $1.2M EBITDA would worry me because it is just barely above the threshold for most lenders when they look for long term viability of the company. You want something with at least $2M or just below that before you dig into the numbers so that when they come up short, you’re at least above the threshold. $1.2m may turn out to be $600K-$800k when you lift the covers.

1 month ago | like reply | 0 likes

searcher from University of Pennsylvania - The Wharton School

Agree with Dan re: lending below $2M EBITDA. For the most part, SBA is only way to go....so it is likely your options will be very limited and if you do find someone to lend (non-SBA), it will likely be at 30-40% max.

re: multiples - i am not sure there is rhyme or reason these days and large public comps are not a good starting point. If you want the business and the returns work at the price you want to pay, no need to worry what the multiple is. If there are several buyers, you may need to pay up and the numbers may still work at 5.5x or 6x.

4 years ago | like reply | 0 likes

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