Size Matters / The Industry Matters
Several months ago, we were working with a client to complete a market value analysis. In addition to the conclusion of value (range), we identified several potential obstacles that if eliminated or mitigated would increase the value significantly. The client, wanting to maximize the price and her proceeds from the sale worked diligently for several months and felt that some of the obstacles had been eliminated and others had been mitigated……. she was ready to move forward.
Our client had been speaking with her CPA about the value and she had “received” several opinions from friends and peers regarding “multiples”.
Using reliable data from various done deal databases we were able to demonstrate to her that these multiples that she had “received” were not accurate…….THEY WERE TOO LOW!!
In other words, companies in various industries and companies of various size have specific multiple ranges based on unique aspects. Her industry has a relatively low CapEx requirement and a relatively low working capital requirement and buyers who recognize this pay a higher multiple!
The moral of this story is twofold:
1.) Well intentioned friends and peers’ opinions in such matters are frequently mistaken.
2.) Size matters and industry matters when applying earnings multiples to determine value.
