What is a Multiple x
A multiple is then applied against Normalised EBITDA to come up with some idea of what to expect based on what others have sold for. But what multiple to use? Many people throw out multiples as if they can be made up as some form of matter of opinion with no reference point. This is not true, we have many reference guides that do that analysis for us collating the data across 1000s of business sales so multiples are not just a finger in the air, there is real data behind it. The next question is what drives these multiples. The simple answer is RISK. A phenomenon of multiples is that as Normalised EBITDA rises, risk decreases and multiples tend to go up. Think of an aeroplane in turbulence. The larger the plane, the less it is affected. This is why a company with £300K Normalised EBITDA may have a 4x multiple and the exact same business with a £1.2M Normalised EBITDA might attract a 6x multiple. There is less risk of one or two things happening that derail Normalised EBITDA for the larger company so risk is lower.
I have done 100’s of pricing exercises and found that in general:
● Businesses on the High Street with under £200K Normalised EBITDA sell for about a 1.5x - 2x multiple of Normalised EBITDA. ( Note: Often on the High Street we use a number called Sellers Discretionary Earnings (SDE) which is similar to the Normalised EBTIDA but we completely take out the owners salary and do not normalise an owner replacement with the idea the new owner will be taking the cash flow directly) . ● Most businesses under £1M Normalised EBITDA will attract a 3x or 4x multiple. Generally, if the business has recurring
59
Made with FlippingBook - professional solution for displaying marketing and sales documents online