Seller Add-Backs

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by a searcher from Thunderbird School of Global Management
in Salt Lake City, UT, USA

1yr ago

Seller Add-Backs

"When I’m reviewing a seller’s adjusted EBITDA, I often see add-backs that make earnings look stronger. As a buyer, what are some smart add-backs I should be making on my end — things that might reverse seller adjustments or reflect real operating costs post-close? How do you typically separate what's truly discretionary from what’s essential to run the business?"

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reply by a searcher 1yr ago
from Georgetown University in Helena, MT, USA

If the business you are looking at is asset heavy, I would look at the current condition of those physical assets and see what the replacement cost would be if they are old. Replacement cost should be added back if those physical assets are on death's doorstep.

reply by a searcher 1yr ago
from Harvard University in Boston, MA, USA

I would look at (i) rent expense relative to market (sometimes they get locked into low rates, but you will quickly have to pay market) and (ii) I would look at insurance spend on the P&L to make sure that is appropriate for the size and industry.