I've noticed Searchfunder is now in the business of overvaluations.
November 08, 2021
by a searcher in Los Angeles, CA, USA
If you've seen their new section, they include EBITDA Multiples by Industry, unless you are looking to go bankrupt in the next 90 days make sure to not follow those guidelines as this will lead to overpaying.
Search funder should be doing a better job in educating it's users on true valuation metrics and stop trying to take a cookie cutter approach when it comes to making offers as these are detrimental to the buyer and only benefits the seller.
from The University of Chicago in Chicago, IL, USA
As others have said, SF provides the data. It is up to the user to interpret it.
Btw, SF has chosen BVR, probably the most reliable source for LMM multiples. You may not know but BVR data is revered in legal courts in cases involving valuation disputes. I can't imagine a single valuation court case that did not involve BVR stats.
Let me share few items from my teachings over the years.
1) Give me a price and EBITDA of a completed transaction, I will give many multiples at which that specific business was sold.
2) Std. Deviation of multiples, in almost all databases, including BVR, is very large even for a specific industry or size range. For example, if average is 5x, then, std. deviation, after removing outliers, is typically 2, meaning 2/3 of the multiples are between 3x and 7 x.
3) Going into a downturn, average multiples get lower b/c data set includes a larger % of underperforming businesses.
4) For good companies, multiples do not go down in downturn. If anything, there is a tendency for them to go up b/c of their resiliency. Recent examples: healthcare, HVAC, etc.
5) For good companies, coming out of a downturn, multiples go up even though price has not gone up. This is b/c the TTM denominator is low. There are signs of this in current market.
6) If forecast is given and if past EBITDA is known, value depends on access to debt capital and equity capital, and terms of such capital.
7) QoE is a single datapoint. It is a starting point for cash flow, but not cash flow.
8) For a given EBITDA, value heavily depends on QoB.
from California State University, Sacramento in Auburn, CA, USA
As a 32 year career SBA lender, predominantly financing business acquisitions, I can tell you that I actively work with 30+ very ethical, well educated, honest, smart, err on the side of caution, long-term, business brokers and M & A brokers (differentiated by deal size). They take listings to market at "fair market prices" that can be substantiated, will value based on tax returns, accurate GAAP financial statements, and use standard realistic add-backs for adjusted cash flow purposes.
In my career, I have financed the same business multiple times through the same referring business broker. An ethical long-term business broker will gain a new listing of a business he/she previously sold if they did a good job the first, second, third time selling it. This is common with most of my referral base.
A buyer who is led astray by a business broker has not done their due diligence and relied on the advice of uneducated and/or unethical individuals OR is too cheap to hire up to assist with proper due diligence.
It appears that you've had one or more bad experiences. Don't throw the baby out with the bath water. There are GREAT people out there in the business brokerage and M & A space.