I recently came across a great wholesale company (~$750k Adj EBITDA) in a highly specialized industry. Stable revenue, recession proof(ish) industry, no customer concentration, exclusive product line, etc.
The owner wants to sell for a reasonable multiple (3.5x) plus inventory. The challenge with this business is that inventory is almost 2x EBITDA- which puts the total price paid at 5.5x on a stable, $750k business.
Any suggestions on how to structure a sale of inventory to make the numbers work?
Wholesale/Distribution- How to make the numbers work with inventory
by a searcher from The University of Michigan - Stephen M. Ross School of Business
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In short the idea is to assess whether there is enough inventory at day 1 after acquisition to continue operating and maintain EBITDA without much additional financial investment.
If the working cap (inventory) is in the range of normal , the question, in my opinion, is whether you would buy this company at 5,5x its EBITDA.
If you assess it is in excess than the implied multiple is below 5,5x as you are having excess of inventory.
If you assess that the level is below normal level it means you will need to buy more inventory to maintain at least the current performances and ultimately paying over 5,5x.