EBITDA Volatility and Pricing

April 10, 2025
by a searcher from University of Connecticut in West Newbury, MA, USA
I am evaluating an HVAC purchase and it's had a jump in EBITDA in 2024, and I'm curious how to price it accordingly. For example, EBITDA went from $575k, to $625k, to $1.045mm in 2022, 2023, 2024 respectively.
Would you take a T3 blended approach and apply a relative multiple to it?
It does seem like there are valid changes in the business that have led to this, mostly from an efficiency standpoint, but it would be risky to only use 2024 for the purposes of valuation multiples.
Any advice would be greatly appreciated.
from University of Wisconsin in Denver, CO, USA
Adds complexity, but gives them the opportunity to earn what they think it's worth and protects you in the case it doesn't repeat.
from The Johns Hopkins University in Gainesville, FL, USA
How do you handle this strategically from a pre-LOI perspective? 1. You do your best to ascertain why the EBIDTA has improved and whether the changes are sustainable. 2. You model your assumptions (I can help with this) to identify key metrics and do some sensitivity analysis. 3. You make you best offer in the LOI, but state the assumptions that got you to that multiple. Then make clear that deviations from the assumptions found during DD will affect the multiple. 4. If the LOI is signed, dig in deep!