SDE vs EBITDA multiples

by a searcher from Texas A&M University - Texarkana

2 years ago

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?

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52 comments

searcher from University of Virginia

I calculate both. SDE is a way to normalize earnings. The same company can pay its owner $80k or $500k, so it's worth using as a tool to standardize things. Then as a sanity check make some assumptions about what management would cost and apply to get to EBITDA. Every company is different. I'm looking at something <3x SDE. Though admittedly small, it would be really hard to meet debt service requirements if I paid 3x SDE (modeling out is how I ultimately got comfortable with a valuation range).

1 month ago | like reply | 0 likes

searcher from Colorado State University

https://twitter.com/guessworkinvest/status/1742597640989053187

3 months ago | like reply | 0 likes

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