Valuation of Professional Service Firms

by a searcher from Lousiana State University

2 years ago

Given the need for previous owner/partner involvement, lack of asset base, typically short term agreements vs long term contracts, and need for buyer involvement; what are typical valuation multiples for professional service firms in the $5MM - $10MM revenue range?

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professional from Harvard University - Harvard Business School

I have been searching in this space for a while. I have been seeing EBITDA multiples of 2x for small distressed assets and 10x for fast-growing businesses of $3m EBITDA or more. Businesses asking for 8x+ are only getting there with significant earn-outs. Seems that stable businesses of $500-$1,500K EBITDA are 3-6x, depending on growth and customer contracts.

2 years ago | like reply | 0 likes

investor from The University of Chicago - Booth School of Business

Simple answer is probably 4-6X EBITDA in the current market. Range depends on the factors you mentioned, including size, strength of management team, length of contracts, barriers to entry, IP. If the seller was too involved and needed for anything other than a (short) transition period I would avoid the deal altogether.

2 years ago | like reply | 0 likes

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