What multiple would you pay for this distribution business?
February 19, 2025
by a searcher from Washington and Lee University in Dallas, TX, USA
Friends,
I am looking at a distribution business that turns over its inventory about 10-11x per year. Total revenue is $6.5-7.5mln/yr with SDE of ~$1mln/yr. Typical inventory value is ~$600k with the warehouse rented and not owned. Total employees that will come after purchase is 3 (1 sales, 1 ops and 1 warehouse/phone/utility man). The business has shown steady financial results in recent years with modest (~10%) growth in the past year but exposed to an end-market that could generate more sizable growth due to increasing end-market demand for the products distributed. Customer concentration is fairly low with no customer > 20% of revenue. My question for you guys is what is the appropriate multiple to pay for this business given the facts above. Thanks in advance for any thoughts!
I am looking at a distribution business that turns over its inventory about 10-11x per year. Total revenue is $6.5-7.5mln/yr with SDE of ~$1mln/yr. Typical inventory value is ~$600k with the warehouse rented and not owned. Total employees that will come after purchase is 3 (1 sales, 1 ops and 1 warehouse/phone/utility man). The business has shown steady financial results in recent years with modest (~10%) growth in the past year but exposed to an end-market that could generate more sizable growth due to increasing end-market demand for the products distributed. Customer concentration is fairly low with no customer > 20% of revenue. My question for you guys is what is the appropriate multiple to pay for this business given the facts above. Thanks in advance for any thoughts!
from University of Mississippi in Dallas, TX, USA
from INSEAD in Calgary, AB, Canada
- I look at inventory turnover as COGS divided by inventory value (this looks closer to 7-8 turns) which is still quite good more.
- spend time to understand does the sales person or the owner hold the client relationships
- most B2B clients stay with the distributor and dont move with a salesperson (maybe 5%)
and there is usually enough time to get a meeting to show it is better to stay with you versus follow the salesperson. It is painful for B2B clients to move distributors
- What do the payment terms look like? in the distribution space, many clients expect 30 + days so the WC is meaningful even if the SDE is juicy.
- how much obsolete inventory does he have (older than 6 months) many sellers dont know or dont track it (can be in the 10% range, which can bring down your real sellable inventory levels
- 20% cust conc is reasonable but try to get a customer meeting at some point in the process
- see if you can figure out profit / customer group or at least on the 20% customer.
- as per other comment in the thread a 15% EBITDA is on the high end of the range
- my guess is that you may need 1-2 more employees to run or modernize (if needed) which will affect the EBITDA
- All in all, good numbers, and generally hits the bencmarks, unless you are realising juicy strategic synergies it will be best to stay in the###-###-#### range.
- this will provide some room to sneeze while learning the business
- keep in mind future growth will likely need a dedicated sales rep/marketing process for new territories, or other sales processes.
good luck