phorizt said:
I'm a small business owner but kind of new to it so don't know anything about selling a business other than a couple of books I've read.
So this deal has 4,750,000 in physical assets and the sales price is $5.5 million. Is it common to sell a business for Assets + 1 year of EBITDA? Seems like a great deal if it is a stable business.
Every deal is unique because the operating metrics required for every business are unique. But generally speaking, whatever a business utilizes to operate is included in the sale price. Buyers are acquiring a going concern, and to be considered a going concern whatever a business uses to generate its revenue is part of the sale.
In this case, typical inventory levels required to operate are $500K and the FF&E used to operate is valued at $965K. The argument is that this business would not generate $3.7M in revenue and $750K in EBITDA without maintaining that inventory level and FF&E value, therefore it's part of the going concern.
By contrast, a different distribution business with the same revenue and EBITDA may operate with much less equipment or on thinner inventory amounts - the valuations would still be relatively the same because the multiple of EBITDA will still relatively the same.
Also, in this case the real estate makes the ratios look different - the business value is $2.25M.
And keep in mind, $750K was last year's EBITDA - valuations aren't based on one singular year. When you blend multiple historical years' results, as well as considering the current year projections and the LTM snapshot, the weighted EBITDA is not $750K. So the actual multiple of EBITDA used is higher than it appears.