6-7x for a Self-funded Search Deal?

by a searcher

7 months ago

Looking at a business with $3M revenue and ~$750K in EBITDA. Seller wants ~7x. The business is entirely contracted and recurring revenue, a proprietary deal, and the company has grown consistently and steadily every year for the past 7 (including the COVID years). Seems very scalable with several opportunities for growth and strong fixed cost leverage as the topline grows. In traditional search, this seems like it might work. 

Does anyone have perspective on doing a self-funded search deal like this? 

Pretty rich multiple, but also a great business. Wondering if there's a thoughtful way to do it with seller financing, larger equity check than a typical self-funded deal, and potentially some equity rollover. May be just too high of a multiple for the size of business though.

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128 comments

searcher from Babson College - F.W. Olin Graduate School

The multiple is fine. The structure and your implied value creation is what matters the most.

3 days ago | like reply | 1 like

intermediary from Pepperdine University

If contracted and recurring revenue, consistent steady 7 year growth, very scalable, several opportunities for growth, 25% EBITDA margin, and strong fixed cost leverage so increasing EBITDA margin with growth, absent unusual risk factors this is likely a very realistic price range (whether you can get search fund LPs to fund it may be another story). For example, many software companies have a true recurring revenue model and other characteristics similar to what you describe. When I do a search of Software sold comps with $500k-$1 m in EBITDA on DealStats there are 78 sold comps with a median EBITDA margin of 10.9% and a median EBITDA multiple of###-###-#### and even the 25th percentile is an EBITDA multiple of 5.7x).

3 days ago | like reply | 0 likes

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