ValueBit - Size Matters
The multiple of EBITDA that a buyer will pay for your company is an indicator of the risk of the buyer’s investment in your company. More specifically, it is the buyer’s perception of risk. Do they think the current cash flow generated by the company will continue into the future? In today’s economic environment, multiples of EBITDA for companies with less than $15 million or so in annual revenue are generally in the range of 3 to 5. The multiple, however, goes up with size. Larger companies are perceived to have less risk. A small machine shop with $500K in revenues may sell for 2½ times SDE; while a $14M diversified manufacturer may sell in the area of 7 times EBITDA. Size matters when calculating business value. Next month we will talk about other ways to affect the multiplier.
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