Thoughts on wild listing prices

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by a searcher from Columbia University - Columbia Business School
in Washington, DC, USA

1yr ago

Thoughts on wild listing prices

Here’s a few that stand out

- Broker listed a lumber business for 16x, explaining to me that she wanted full replacement value for all the assets on top of the industry standard 3x cash flow multiple
- Broker for small landscaping business wanted 9x for business and real estate, having valued the real estate 10x higher than comps suggest
- Broker for home goods company listed the business at 3x, but wanted me to purchase $2M of inventory on top of that for an effective multiple of 6x
- Broker and I agreed that comps support 3x for his glass repair business, but he still expected 5x for some reason
- the list goes on...

Is it worth playing ball to eventually get in front of the seller to reset expectations?

Also seems like sellers might benefit from some type of sell side consulting to gut check their own CIMs…

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reply by a searcher 1yr ago
from University of Illinois at Urbana in Champaign, IL, USA

Make some notes and then come back in 6 to 12 months to see if anything has changed. I don't think it is worth your effort to try to convince them that they're wrong.

reply by an intermediary 1yr ago
in Campbell, CA, USA

It looks to me like you're combining the prices, then deriving the multiple on cash flow for the combined price. The price of CRE is separate from the cash flow of the business because it is not operational and there are some industries in which it is customary to add inventory or excess inventory to the price. This does not make the cash flow multiple greater.