Rule of thumb, SDE multiple and inventory?

by a searcher from California Polytechnic State University - San Luis Obispo

9 months ago

Hey all, 

When talking about price/SDE multiple being in the 2-4x range being ideal, do you include the cost of inventory in that price numerator? 

I've seen conflicting opinions on this so I wanted to gauge how everyone's been thinking about it. 

So far, I've been thinking of it as INCLUSIVE in the price so it pushes the multiple up to be what I consider normal. 

The reason why I ask is because I see a lot of listings that have a seemingly great multiple and then when you get more info it mentions that inventory was NOT part of the advertised price so it goes from being a 2x multiple to a 2.5 or 3x.

2 likes
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16 comments

searcher from University of Washington

On the financing side you would consider asset-based lines and some term plus equipment finance if they manufacture Cerebro Capital can help select the financing partner

7 months ago | like reply | 0 likes

professional from James Madison University

A normalized level of inventory should be included in the purchase price. But I’ve seen it both ways so this is typically a sticky deal point which should be addressed early in the process.

8 months ago | like reply | 0 likes

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