Valuation on an asset heavy business

by a searcher from Harvard University - Harvard Business School

4 years ago

I'm looking at a business w/ $4-6M in assets (owner says $6, I think an independent appraisal will say ~$4), $5.8M in rev, and $1.5M in annual EBITDA (broker had him thinking adjusted EBITDA was close to $2). Diversified, decent reputation, good employees, and slowly growing even through Covid. Specialty manufacturing with great margins for the industry but zero IP or truly unique products.

I offered $6-10M (earn-out based on growth) and the broker talked the buyer out of it. Official response was: I have $6M in assets and would never sell for only that. He's had two other offers over the past three years. but both of the other buyers walked away. I may need to as well...

How would you think about pricing it?

6 likes
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24 comments

searcher from Northwestern University - Kellogg School of Management

I have a deal that has this component as well. Specifically they “have $1.4m invested in the software” to run their business / factory and want to be made whole. Unfortunately it’s not worth anything close to that since off the shelf software is as good or better. Sometimes sellers just can’t get over sunk costs.

1 year ago | like reply | 0 likes

intermediary from University of British Columbia - Sauder School of Business

Although the numbers say a lot, but it'd make more sense to look at similar deals in the "specific industry" while evaluating. I've seen different kinds of manufacturing facilities being structured uniquely. What multiples they are sold for and how they are treating the assets? What % of the assets are equipment vs the rest may also play a big part.

1 year ago | like reply | 0 likes

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