What is my business worth?
Find out what your company is really worth in the eyes of Strategic and Financial Buyers.
Understanding what your company may be worth is very important. You are getting approached by buyers (strategic and financial) all the time. How do you know what they are offering is fair? On the flip side, bankers and brokers are also hounding you to sell your company. They however, will tell you a much different number than most buyers will. That’s because they want a retainer check with the long-shot goal of a potential sale (there’s a reason why 85%+ of brokered transactions fail).
Finding the middle ground is key.
What will a buyer truly pay for your company? And… How do you know that you’re not leaving money on the table?
Below is a quick guide on valuations that we have seen first hand in various industry segments. A business's value is often derived from a multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization) and that multiple can vary based on the industry the company operates in.
Distributors have much lower margins. Often, less than 5%. That means on $100M in sales they only net $5M of EBITDA. A buyer assumes a lot of risk and may only pay 4-5X. However, the larger the EBITDA the higher the multiple.
Manufacturers typically generate somewhere between 8-20% EBITDA margins. If EBITDA ranges between $1-2M that business should be valued around 4-6x. If their EBITDA is in excess of $3M EBITDA, 6X+ is very reasonable. We have not seen many deals above 10X. If someone tells you that, it’s probably a lie or there is a serious strategic play at stake (very rare).
Software is where things are starting to get ridiculous. We are no longer speaking in multiples of EBITDA. We are now talking about how many times revenue you can get. If you are pure SaaS, you will probably get offers in the range of 2-3X ARR (annual recurring revenue).
IT Managed Services or MSPs are a hot topic. Many industry wide roll-ups are happening and buyers are getting more and more competitive (within reason). We are seeing $1-2M of EBITDA get about 5-6X. However, once you achieve scale and enter the $4M EBITDA world, you may now get offers in the 7-8X range. Rarely do we see anything above this, you must be very large.
Dental Practices are getting more and more attention these days. Common characteristics include, at least 4+ operatories and at least $750K of annual collections. It’s tough for professional buyers to get interested if these numbers are less. Anything in excess of these baselines should see offers come in at 4-5X earnings. Multi-location practices with 10+ ops and $10M+ of collections should see that EBITDA multiple jump to at least 7-8X.
These are just some examples and much more goes into the equation than size, profitability and industry. Buyers will also consider customer concentration, historical financials, and growth opportunity in their valuation equation. This can impact price quite significantly if there is risk tied to any of these factors.
As you can see, GP Partners sees a ton of activity in a lot of market sectors. If you are wondering what your company might be worth in the eyes of a buyer, talk to one of our experts.
Keep in mind, we are not incentivized to take a retainer check from you. We are motivated to get you the best possible offer for your business to ensure we have a successful outcome. At the end of the day, we work in your best interest and are only paid by the buyer.