It could be your brother-in-law, a friend, neighbor or competitor who charts the waters as the seller of their business. You hear they received a monster valuation for their company and, of course, you’re just as smart and your business is just as nice, so you’re expecting the same for your company. We cover this topic a lot because we see it almost daily when speaking to business owners and asking them what their business is worth.
Know this… no two companies are the same. No two companies have the same management team, brand position, customer profile and concentration, locations, etc. There are some that are very similar, but they are never the same.
This cuts both ways. Your brother-in-law may have gotten 4X for his company. It doesn’t mean your company is worth 4X. You may be in the same industry but you benefit from a better fleet, equipment, management team, customer profile and predictable, reliable cash-flow. Congrats, you will get more money for your business. On the flip side, if you’re the critical piece to your management team and the company can’t operate without you or your equipment is dated and needs a dire capex infusion, your valuation will be lower.
How else do we see market multiples manifest itself for clients?
With buyers… many buyers have a preconceived idea of what they will pay for a certain business. “It’s an environmental services company doing $1M in EBITDA – we’ll pay 3.5X.” A lot of buyers get stuck in their set valuation formula and forget there are different factors that affect the value of a company and not all $1M environmental services businesses are created equal.
When we bring a $10M revenue, $2M EBITDA, niche manufacturer of metal products to market, 80% of the buyers who contact us believe it’s worth 4X EBITDA. They “know” that’s what they sell for. However, when we peel back the layers of this unique opportunity we can present that there’s no customer concentration, 70% of the revenues are from customers who have been with the company more than 8 years and the cost structure and lease for the facilities are excellent. Management is exceptional and they have been growing each of the last 5 years. These factors make the company worth more - likely a 5.5X-6X EBITDA business.
The point is YOUR business is worth what YOUR business is worth, not someone else’s. If you’re really better than your competitors, you’re likely worth more than your competitors.
If you want to chat about the specifics of your company and how the market will perceive and value it, please contact us at 704.295.0102. You can also click here and find the Valuation Portal at the bottom of the page. We’re happy to give you general valuation guidance based on the nuances of your company.
Question: What do you think sets your company apart and makes it worth more than your competitors?