Sizeable retail Food & Beverage Business - COVID resilient

November 07, 2020

by a searcher from University of California, Santa Barbara in Cincinnati, OH, USA

I'm looking at a food & beverage business that does most of its revenue through retail and has had very strong resilience during COVID. However, expenses haven't declined as much as revenues, which has squeezed EBITDA this year. Given its size and popularity in its market, I'm confident it's going to emerge from COVID as strong or stronger than pre-COVID, and there's no way the owners would sell on a multiple of COVID only. Does anyone have advice or thoughts on how to value a business like this, taking into account both pre-COVID and COVID earnings?

Reply by a searcher
from Universidad Internacional del Ecuador in Cuenca, Ecuador

I second ^redacted‌'s thought of having the seller involved with some kind of earn out. Keep in mind that asking the seller to have some skin in the game is not uncommon at all, even more so in times like these where Covid is upending so many companies and there's still a long way to go back to "normal".

Reply by an investor
from IESE Business School in Paris, France

You have a few options evolving around keeping them in the company as shareholders for a while (2-3 years) with an earn out plans based on future EBITDA results post Covid. If the recovery happens to the level pre-Covid valuation calculation should match what they had in mind before, if not you are safe and will not over pay for the business. Best Jean-Cyrille

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