IRR Expectations

July 19, 2021

by a searcher from Xavier University of Louisiana in Houston, TX, USA

What type of total business and equity IRR are investors looking for?

I'm looking at a scrap metal pick up and delivery company trading between 3-5x EBITDA in Houston. No scrap yard. I liken it to a trash collection company except that the trash is valuable and they buy it from the company they collected it from and sell it to scrap yards and keep the difference.

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Reply by an intermediary
from The University of Chicago in Chicago, IL, USA

I looked at such business while representing a buyer. On first look it looked great. But then I found there was nothing constant a) customers were not the same, b) material was not the same, c0 availability of scrap was not the same, d) prices paid to the company to pick up scrap, e) prices received from the company who bought the scrap, and many other business parameters, As a result the top line had uncontrolled fluctuations and had inconsistent and difficult-to-track profitability. To make things more challenging, due to presence of cash deals, the books were not clean. It was just not the business for my client with MBA who wanted to buy a business that can be scaled. For IRR and DCF one should have a reasonable degree of comfort on forecast. Absent that IRR is just an exercise.

Reply by a searcher
from The Johns Hopkins University in Houston, TX, USA

redacted‌ - Sorry for dragging up an old post, but the spreadsheet you shared seemed to be quite popular. I'd be interested in checking it out. The URL was no longer working for me. I just DMed you my email address. If you happen to still have access to that spreadsheet, I'd appreciate you sharing it. Thanks!

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