Offer example: Let's say Company A has the following data points:
1. 1. Normalised EBITDA for the last 12 months is £600K. 2. 2. The business is a maintenance business so highly recurring. 3. 3. The Buyer has £400K to invest in the transaction, £100K will need to be costs (funding, lawyer, etc) 4. 4. The Buyer is operating in a similar business and is local to the acquisition will become an additional business unit. 5. 5. We calculate there is £500K of excess cash in the business but £350K in long-term debt including accrued corporation tax meaning that £150K is net excess cash (Note: The actual figures will be determined at closing, this is just an estimate to give the Seller an idea of his cash flows). 6. 6. The director's loan account has a credit of £100K. 7. 7. The Seller feels the current run rate Normalised EBITDA is understated due to growth and will be £100K higher than the financials are showing in year 1. An offer could look something like this: Enterprise Value - £600K * 4x = £2.4M (4x as the revenue is highly recurring) Purchase Price - £2.65M - Add: Excess cash of £150K and directors loan write-off £100K (both of these are added on top of the Enterprise Value and then paid/cancelled at closing which allows the Seller to only pay capital gain tax, they have no effect on the Buyer’s purchase or on the Enterprise value..i.e. the Buyer is not actually paying for these). Closing Payment - 70% of Enterprise Value = £1.68M + £150K excess cash + £100K directors loan write off = £1.93M
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