revenue and/or heavy equipment then this pushes the multiple up as risk is reduced. ● For a business that has Normalised EBITDA over £1M, the multiples tend to go up to 5x/6x. ● As EBITDA rises up to £2m/£3M/£4M, etc the multiple goes up again. I have heard reports of brokers giving multiples far greater than these (sometimes triple!) but the data just doesn't back this up. Upon investigation, they are usually trying to persuade Sellers to pay a large upfront fee to sell their business and/or do not have the right education, experience and access to M&A data. We always say that the multiple x is only the start of the conversation about valuation. The middle of the conversation is all the nuances for that particular business and the end of the conversation is whether the valuation created actually cash flows relative to the profit and debt ratios for a particular buyer. A trained M&A Advisor would of course need to do a comprehensive review of each business as they are all different but hopefully, this gives you an idea. in the end, it is about whether a Buyer and Seller want to do business and are willing to go through the process of putting a deal together that works for both parties.
What About Working Capital and Debt?
Most businesses are sold on what the industry calls a 'debt free/cash free' basis. Ironically, this can be confusing as debts are left in the business to creditors and HMRC (VAT) and cash is left in the business in order for it to function so it is neither debt-free nor cash-free!
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