SDE multiples seem to be common for small businesses I've been looking at but I still think it's ridiculous and just a way for the seller to overvalue his/her business. EBITDA multiples of 3-4 seem normal right now but SDE owners are trying to use the same 3-4 range.
Is anyone out there paying 3-4X SDE? Or any experience making offers based on EBITDA multiples when the sellers has an asking price as a SDE multiple?
SDE vs EBITDA multiples
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by a searcher from Texas A&M University - Texarkana
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However, I think an additional lens worth considering is the value of getting said business from 0 to 1. For many of the reasons people want to buy instead of build, I think it's fair to ascribe some value to that. Yes, other businesses you would purchase as an alternative will have that as well. But what are the other restrictions of your search? Would you rather have a business in your target industry and / or geography or pay 0.5x turn less? I would prioritize the former, especially if this means getting a deal done sooner.
I paid ~2x SDE, ~3.5x EBITDA, but got in my target industry & geo, got in the game faster, and grew ~4x in <3 yrs. So glad I didn't hold out for a little bit cheaper business.