What is valuation multiple for a distribution company? SDE * X + Inventory?
January 08, 2019
by a searcher from Babson College in Chicago Loop, Chicago, IL, USA
I am evaluating a distribution business in the Ad & Promo industry and need to understand valuation multiple for it. Does anyone have experience evaluating a company in this industry with little over $1m in revenue?
from Purdue University in Midlothian, VA, USA
Seller's Discretionary Earnings is genearlly defined as the earnings of a business before:
Income taxes, non-operating income/expenses, non-recurring income/expenses, dep'n and amortization, interest expense/income and owner's total compensation for those services that could be provided by a sole owner/manager.
As you might suspect, people disagree about lots of things in this definition like what constitutes non-recurring or non-operating expenses/income or what constitutes an owner's total compensation. To add to the confusion, some people use the definition of SDE above but also subtract out maintenance CAPEX. As you can see from the definition, this is a cash flow number and it is possible to find data on transaction multiples based off of SDE.
We value a lot of small companies and I see this definition used by many business brokers. Trading multiples based off of SDE can be found in a couple of data bases to which we subscribe and are generally used for very small companies. I'm sure if I poked around, I could find some reasonable comps. With that said, whenever I value a small company and have to use SDE, I also like to consider more traditional valuation multiples (revenue, EBIT, EBITDA).
I'm certainly glad to discuss this more with you if it is helpful. Please feel free to email me.
Best,
Greg Waller.
from Michigan State University in St. Louis, MO, USA