Wholesale/Distribution- How to make the numbers work with inventory

by a searcher from The University of Michigan - Stephen M. Ross School of Business

2 years ago

I recently came across a great wholesale company (~$750k Adj EBITDA) in a highly specialized industry. Stable revenue, recession proof(ish) industry, no customer concentration, exclusive product line, etc.

The owner wants to sell for a reasonable multiple (3.5x) plus inventory. The challenge with this business is that inventory is almost 2x EBITDA-  which puts the total price paid at 5.5x on a stable, $750k business.

Any suggestions on how to structure a sale of inventory to make the numbers work?

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3 comments

intermediary from City University of New York, Bernard M. Baruch College

My distribution doesn't carry inventory. The burden is on the manufacturer. I do carry paper, but easy to finance

9 months ago | like reply | 0 likes

searcher from University of Tromsø

There would not be any business without the inventory, right? If we are playing the slicing game I would use this angle to approach it. Say you could lease the inventory or finance it some other way, what would be the cost of capital for the inventory? I would subtract that cost from the EBITDA. That would be a proper assessment of the business component that you are buying. If there is no EBITDA left after doing this, you are buying an unprofitable business where the real EBITDA of the business really is just a return on the capital the owner has left in the business.

2 years ago | like reply | 1 like

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