Today’s market is ripe for owners looking to exit their business. Since the 2009 recession to the end of 2017, middle market EBITDA multiples have climbed over 50% from a median of 6.4 to 10.3, according to an analysis completed by Pitchbook. Further, the M&A Source Market Pulse survey captured the following multiples for the first quarter of 2018:
But what is your business worth? There’s no simple answer to that question. An ‘Opinion of Value’ report provides what a “reasonably aggressive” buyer would pay for your business in today’s market. We recommend a report that takes into consideration the asset, market and income approaches and assesses individual company performance.
Buyers are acquiring earnings. They apply a multiple to the earnings, which is a factor based on risk. Several risk factors are out of an owner’s control, such as the state of the economy or the specific industry, or capital market performance. Other risk factors can be impacted and are often referred to as value drivers. These include the management team, supplier or customer concentration, financial performance and quality of financial reporting, systems and recurring revenue and earnings.
By understanding what the business is worth in today’s market, and understanding how to strategically manage value drivers, owners have a much clearer understanding of how to drive value and capitalize on what will likely be their largest financial transaction. When coupled with a tax model based on likely transaction alternatives, the owner can develop a realistic wealth plan with their financial advisor.
A business advisor can then present the company in the best light and create as much competition for the business as possible to maximize value when the time is right to exit the business. It all starts with understanding the value of the company in today’s market.