Valuing a deal with real estate included in it

by a searcher from Purdue University

1 year ago

Hi there, how do you normally approach valuing a business where real estate is a component of it?

I'm currently approaching it by finding what the business is "paying" for the real estate (through a lease to the LLC that owns the land which is owned by the same) , then using that amount as a perpetuity and a target interest rate to figure out the value to assign to the land. I then take that value and add it to what I'm valuing the business at (with an EBITDA multiple)

Is that on the right track or should I be looking at it in a different way?

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professional from Northwestern University - Kellogg School of Management

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2 months ago | like reply | 0 likes

lender from California State University, Sacramento - College of Business Administration

If you’re thinking sba lending, the business cash flow has to afford the business and the real estate. Value separately. If the business seller has under expensed a market rent, that could impact your ability to afford the business alone let alone the real estate. Market rate rent adjustments have to happen a lot in LMM acquisitions regardless if the real estate is part of the offering. Make sure the real estate make sense to acquire from the business operations perspective.

1 year ago | like reply | 0 likes

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