{"id":35666,"date":"2019-08-08T14:38:41","date_gmt":"2019-08-08T21:38:41","guid":{"rendered":"https:\/\/www.enxmag.com\/twii\/?p=35666"},"modified":"2019-08-08T14:38:44","modified_gmt":"2019-08-08T21:38:44","slug":"the-ma-numbers-game-what-is-my-business-worth","status":"publish","type":"post","link":"https:\/\/www.enxmag.com\/twii\/feature-articles\/2019\/08\/the-ma-numbers-game-what-is-my-business-worth\/","title":{"rendered":"The M&A Numbers Game: What is My Business Worth?"},"content":{"rendered":"\n

Want a fun exercise? Try saying the words that comprise EBITDA\nas fast as you can, even just once. Earnings before interest, taxes,\ndepreciation and amortization. By the second or third try, it sounds almost\nrobotic.<\/p>\n\n\n\n

Perhaps it\u2019s appropriate, because we\u2019re talking about cold,\nhard numbers here; a metric that helps provide great insight as to a business\u2019\nability to generate cash flow. It also helps paint a clear picture as to a\ncompany\u2019s operating performance, which makes it a critical element when it\ncomes time to place a value on a prospective acquisition.<\/p>\n\n\n\n

Even then, however, placing a value on a company can be\nsomewhat of an inexact science. There are so many factors behind and in front\nof the numbers that can lead to a disagreement of where the final sale value\nshould be pegged.<\/p>\n\n\n\n

\"\"
Dan Ruhl, Oval Partners<\/figcaption><\/figure><\/div>\n\n\n\n

\u201cThat\u2019s what gets thrown around in the industry, multiples\nof revenue or EBITDA,\u201d noted Dan Ruhl, a principal with Oval Partners, the equity\nengine behind Flex Technology Group. \u201cIn the end, it\u2019s so specific by company.\nThe company\u2019s organic growth rates has a lot to do with it, along with their\nreputation, the management team and the margins the business is at.\u201d<\/p>\n\n\n\n

Add in makeup of the customer base, customer retention and\nconcentration, and the picture becomes clearer. Timing is another factor,\naccording to Ruhl. A company\u2019s trailing six months may be far superior to the\npast 12 because of new customers.<\/p>\n\n\n\n

\u201cI think it\u2019s really dangerous for the business owners to\nstart anchoring on multiples as it relates to their business,\u201d he observed.<\/p>\n\n\n\n

Beyond Numbers<\/strong><\/p>\n\n\n\n

\"\"
Chip Crunk, RJ Young<\/figcaption><\/figure><\/div>\n\n\n\n

RJ Young relies on a multiple of earnings, but the potential\nacquisition doesn\u2019t exist in a vacuum, according to President and CEO Chip\nCrunk. How it meshes with his organization, and the ability to build upon the\nfoundation, will be the ultimate motivation.<\/p>\n\n\n\n

\u201cIt depends on the growth opportunity and depends on what\nadditional economies of scale we can bring to the table,\u201d he said. \u201cA lot\nhinges on the potential we see for that business in the next three to five\nyears. But in the end game, it\u2019s really just a multiple of earnings.\u201d<\/p>\n\n\n\n

When it comes to earnings or EBITDA, not everyone likes to\ntalk about the bottom line, according to Jeff Gau, CEO of Marco. But that\u2019s\nwhat it\u2019s all about.<\/p>\n\n\n\n

\u201cYou can get to the number in different ways,\u201d he said.\n\u201cThere\u2019s addbacks or adjustments that take place, maybe synergies that can be\ngained by them selling to us, but here\u2019s what it looks like. Number one, is it\nsustainable in being able to validate the sustainability of your EBITDA?  Too many times, people have their best year\nthe year they\u2019re going to sell, and they\u2019ve got this huge ramp-up. If you have\na huge ramp-up and you\u2019re cruising along at X, and when you decide to sell you\ngo to X times three, you have to be able to validate it. Not just how you got\nthere, but how you\u2019re going to stay there. Vetting sustained EBITDA is really\nimportant.\u201d<\/p>\n\n\n\n

Other Intangibles<\/strong><\/p>\n\n\n\n

Gau adds that consideration may also be given to good leadership,\nparticularly on the sales side. When companies come to the table with a good\nbalance sheet and appropriate inventories, that provides insight into a\nwell-run operation. Conversely, if a prospect needs extra time because\ninformation\/data is not readily accessible, that also paints a picture\u2026albeit\nnot a complimentary one. Buildings, their appearance and functionality, also\nfactor into the equation. <\/p>\n\n\n\n

\"\"
Jeff Gau, Marco<\/figcaption><\/figure><\/div>\n\n\n\n

\u201cA multiple will be applied based on the strength of their\nEBITDA, and the multiple has a bit of a range on it these days,\u201d Gau said. \u201cOn\nthe low side, it\u2019s four to four and a half; on the high side it\u2019s seven. People\nget numbers in their head, but it\u2019s all about trying to validate what those\nearnings really look like. That\u2019s probably the hardest part of the whole\ntransaction, for both owner and buyer, to come to an agreement on that.\u201d<\/p>\n\n\n\n

Novatech tracks a number of variables when it devises the\nvalue of a prospect, including geography, size of the company, strength of the\nmanagement team, makeup of the product line and services, and its customer\nbase\/MIF\/concentrations, in addition to the financial performance.<\/p>\n\n\n\n

\"\"
Jim Sheffield, UBEO Business Services<\/figcaption><\/figure><\/div>\n\n\n\n

For UBEO Business Services, geography plays a considerable role, according to Jim Sheffield, president and<\/g> CEO. Company execution also draws significant focus. Like his contemporaries, Sheffield works with a multiple of EBITDA and revenue.<\/p>\n\n\n\n

\u201cThere\u2019s a range out there, and there can be special\nsituations from time to time where people may pay a little bit more,\u201d he said.\n\u201cBut I think everybody in the marketplace is about the same\u2014four to six times\nis fairly accurate.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

Want a fun exercise? Try saying the words that comprise EBITDA as fast as you can, even just once. Earnings before interest, taxes, depreciation and amortization. By the second or third try, it sounds almost robotic. Perhaps it\u2019s appropriate, because we\u2019re talking about cold, hard numbers here; a metric that helps provide great insight as to a business\u2019 ability to generate cash flow. It also helps paint a clear picture as to a company\u2019s operating performance, which makes it a critical element when it comes time to place a value on a prospective acquisition. Even then, however, placing a value on a company can be somewhat of an inexact science. There are so many factors behind and in front of the numbers that can lead to a disagreement of where the final sale value should be pegged. \u201cThat\u2019s what gets thrown around in the industry, multiples of revenue or EBITDA,\u201d noted Dan Ruhl, a principal with Oval Partners, the equity engine behind Flex Technology Group. \u201cIn the end, it\u2019s so specific by company. The company\u2019s organic growth rates has a lot to do with it, along with their reputation, the management team and the margins the business is at.\u201d Add in makeup of the customer base, customer retention and concentration, and the picture becomes clearer. Timing is another factor, according to Ruhl. A company\u2019s trailing six months may be far superior to the past 12 because of new customers. \u201cI think it\u2019s really dangerous for the business owners to start anchoring on multiples as it relates to their business,\u201d he observed. Beyond Numbers RJ Young relies on a multiple of earnings, but the potential acquisition doesn\u2019t exist in a vacuum, according to President and CEO Chip Crunk. How it meshes with his organization, and the ability to build upon the foundation, will be the ultimate motivation. \u201cIt depends on the growth opportunity and depends on what additional economies of scale we can bring to the table,\u201d he said. \u201cA lot hinges on the potential we see for that business in the next three to five years. But in the end game, it\u2019s really just a multiple of earnings.\u201d When it comes to earnings or EBITDA, not everyone likes to talk about the bottom line, according to Jeff Gau, CEO of Marco. But that\u2019s what it\u2019s all about. \u201cYou can get to the number in different ways,\u201d he said. \u201cThere\u2019s addbacks or adjustments that take place, maybe synergies that can be gained by them selling to us, but here\u2019s what it looks like. Number one, is it sustainable in being able to validate the sustainability of your EBITDA?  Too many times, people have their best year the year they\u2019re going to sell, and they\u2019ve got this huge ramp-up. If you have a huge ramp-up and you\u2019re cruising along at X, and when you decide to sell you go to X times three, you have to be able to validate it. Not just how you got there, but how you\u2019re going to stay there. Vetting sustained EBITDA is really important.\u201d Other Intangibles Gau adds that consideration may also be given to good leadership, particularly on the sales side. When companies come to the table with a good balance sheet and appropriate inventories, that provides insight into a well-run operation. Conversely, if a prospect needs extra time because information\/data is not readily accessible, that also paints a picture\u2026albeit not a complimentary one. Buildings, their appearance and functionality, also factor into the equation. \u201cA multiple will be applied based on the strength of their EBITDA, and the multiple has a bit of a range on it these days,\u201d Gau said. \u201cOn the low side, it\u2019s four to four and a half; on the high side it\u2019s seven. People get numbers in their head, but it\u2019s all about trying to validate what those earnings really look like. That\u2019s probably the hardest part of the whole transaction, for both owner and buyer, to come to an agreement on that.\u201d Novatech tracks a number of variables when it devises the value of a prospect, including geography, size of the company, strength of the management team, makeup of the product line and services, and its customer base\/MIF\/concentrations, in addition to the financial performance. For UBEO Business Services, geography plays a considerable role, according to Jim Sheffield, president and CEO. Company execution also draws significant focus. Like his contemporaries, Sheffield works with a multiple of EBITDA and revenue. \u201cThere\u2019s a range out there, and there can be special situations from time to time where people may pay a little bit more,\u201d he said. \u201cBut I think everybody in the marketplace is about the same\u2014four to six times is fairly accurate.\u201d<\/p>\n","protected":false},"author":166,"featured_media":35383,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1650,82,87,1638],"tags":[3487,545,3410,501,3510],"_links":{"self":[{"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/posts\/35666"}],"collection":[{"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/users\/166"}],"replies":[{"embeddable":true,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/comments?post=35666"}],"version-history":[{"count":1,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/posts\/35666\/revisions"}],"predecessor-version":[{"id":35667,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/posts\/35666\/revisions\/35667"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/media\/35383"}],"wp:attachment":[{"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/media?parent=35666"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/categories?post=35666"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/tags?post=35666"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}