Valuation of a manufacturing cie @ Assets value or @ EBITDA multiple?

February 06, 2025

by a searcher from Université de Sherbrooke in Montreal, QC, Canada

I'm looking at acquiring a health supplement manufacturing company.

The company has 3.2M$ worth of assets but generates only 600K EBITDA / year. The company operates at roughly 15% its production capacity right now.

The seller values his company at 3.8M$, which is value of assets + some intangibles (IP, etc.)

Is valuation @ Assets value the right way to value a manufacturing company?
> If so, should I pay for 100% of the evaluator's valuation, or lower?

Should I value @EBITDA multiple ?
> If so, what multiple should I benchmark on?

Thanks!

0 Likes

20 Replies

114 Views

Replies

Reply by a searcher
from Emory University in Tucson, AZ, USA

For researching valuation multiples, BVR Transactions on SF can be a valuable tool. When valuing a business, the cost of machinery required for operations doesn't typically impact the valuation. Instead, focus on the future cash flow the machinery can generate. With 15% utilization, additional capital expenditures may be minimal, but it's essential to investigate and factor capex into your valuation. For capex-heavy companies, using EBIT instead of EBITDA may be more suitable - search "Warren Buffet EBITDA" for the argument. Drill down on the $3.2m valuation as sellers often have an optimistic view, inflating values based on replacement costs or the sunniest of ideal sales scenarios, rather than considering liquidation value, post-depreciation value, or other more realistic measures. (We were evaluating two companies in adjacent categories that required minimal capex for some line extensions ... there was a lot of used equipment in the marketplace that crossed over into supplement manufacturing.)

Reply by a professional
in Toronto, ON, Canada

Hi ^redacted‌ the information in your query is still somewhat limited here. Manufacturing business typically are valued on multiples of cash flow/ebitda but exceptions are always applicable on a case to case basis. If you are interested solely in the seller's machinery & equipment, you may consider acquiring the assets plus contracts and employees and go in with the asset valuation. However, if you are looking for taking the whole business, you may go in with a multiple of SDE. I'd be happy to discuss further as applicable. As a quick intro, I am an ex-Big 4 M&A consultant providing advice in this space, and swiftly reachable at redacted

+18 more replies.

Join the discussion