I’m about to submit an IOI on a fast-growing service-based business. The business is only a few years old but has grown rapidly. Their EBITDA quadrupled from 2022 to 2023 and they are forecasting it will basically double every 2 years for the foreseeable future. I’m currently in a related industry and agree that, with the right execution, the business could grow very quickly.
Assuming their forecasts are somewhat realistic, any thoughts on valuing a rapidly growing company like this? Regarding the multiple applied, the biggest issue I see is they do not have a solid management structure in place. Any thoughts on how to arrive at a value if you are forecasting rapid growth like this? The owner is seeking a 10-ish multiple…which I think is too high based on how new the company is and the lack of management.
Also, any thoughts on how a lender would view a new business that is growing this rapidly? I’m not sure how financeable this is.
Any thoughts or feedback would be much appreciated!
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by a searcher
from Babson College
in Bethesda, MD, USA
in Bethesda, MD, USA
1yr ago
Thoughts on Valuing a Fast-Growing Business and Structuring an Offer?
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by a lender
1yr ago
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
I agree with Lisa Forrest. Going to be hard to get senior debt just based on one year of elevated operations, whether from an SBA lender, conventional lender, or even potentially a non-bank lender.
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by an intermediary
1yr ago
from The University of Chicago in Chicago, IL, USA
from The University of Chicago in Chicago, IL, USA
1. High growth can mean lower value if WC or CapX are high. I doubt that is the case in your situation. In that case,
2. High growth has high multiple but requires high % equity to achieve Target IRR.
3. If equity % is lowered, debt-service will be a problem. This can be fixed by lowering multiple. In this case, IRR will increase beyond the Target IRR. But Seller will be unhappy with lower multiple. You can make the seller happy by sharing the high IRR. This and other options like earnout or forgivable notes have other challenges depending on lender.
4. There many other structure options. I am currently working with one that uses SBA.
Note: I am converting desktop version of my software to online version. It is almost ready. Try redacted. You can also DM me.
2. High growth has high multiple but requires high % equity to achieve Target IRR.
3. If equity % is lowered, debt-service will be a problem. This can be fixed by lowering multiple. In this case, IRR will increase beyond the Target IRR. But Seller will be unhappy with lower multiple. You can make the seller happy by sharing the high IRR. This and other options like earnout or forgivable notes have other challenges depending on lender.
4. There many other structure options. I am currently working with one that uses SBA.
Note: I am converting desktop version of my software to online version. It is almost ready. Try redacted. You can also DM me.
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