Private Equity firms generally value a business based on a multiple of EBITDA. The multiple used to determine the value varies depending on a number of factors specific to an individual business.
No technical advantages with products and services comparable to those offered by competition
Some technical expertise not widely available, allowing company to enjoy a small premium
Own IP or technical expertise, allowing company to enjoy substantial premium
CEO wears several hats and senior management team is limited to (1) key member, with (3) or more immediate hiring needs
Senior Management team made up of (3) strong managers, with (2) hiring needs within the next two years
Senior Management team well staffed with no apparent hiring needed to support growth
Gross Margin = Revenue – Cost of Goods Sold (labor, manufacturing overhead & material)
15 percent 20 35Project oriented or one-time purchases / Local Market
Mix of one-time and recurring revenue / regional market
Small, recurring purchases / Blue-Chip multi-national
Top 5 customers account for greater than 80% of revenues
Top 5 customers account for less than 50% of revenues, with no single customer accounting for greater than 20% of revenues
Top 5 customers account for less than 30% of revenues, with no single customer accounting for greater than 10% of revenues
0% growth per annum
5% growth per annum
Growing faster than GDP, 10% or more per annum
EBITDA can be calculated using the bottom-up method:
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