Deal Maker's Resource Center 
Resources based upon experience gained and lessons learned in selling over 2,000 businesses

How to:

  Buy a Business - Sell a Business - Value a Business - Investigate a Business - 
Build Business Value - Broker a Business - Document a Business Transfer 

Home          Our Catalog

Our Guarantee 100% Satisfaction or  Your Money Back - No Questions asked - Always Free Shipping

 

Business Acquisition Protocol and
Business Valuation Matrix

Transaction structure and financial requirements will vary depending upon the size and type company involved.  Businesses can be divided into four classes.  Definition of Earnings, usual Price/Earnings ratios and Terms of Sale vary by classification.


Wall Street
Usually Public or very large private companies.
  Earnings:                         Measured in Millions
  Earnings Definition:          After Tax Earnings
  Price/Earnings Ratio:       10x to OMG*
  Usual Terms:                   Cash or equivalents
  * Oh my GOD!


Middle Market
Generally Private companies with well defined Corporate structure.
  Earnings:                       $500K to Low Millions
  Earnings Definition:        EBIT , EBIT-D, EBIT-DA to After Tax Earnings
  Price/Earnings Ratio:      3x to 15x
  Usual Terms:
       Down Payment:        Equity of 1 to 2x Earnings to all Cash
       Plus:                         Bank note(s) and owner financing   

Companies that represent a "Strategic Fit" usually will be valued and sold using "Wall Street" protocol. When a strategic reason for purchase is lacking, "Upper Main Street" methods are generally employed.              


Upper Main Street
Private companies with Corporate structure developing.  Owner has delegated many functions to others.
Earnings:                          Usually under $500K
Earnings Definition:           Adjusted EBIT or EBIT-DA, Sometimes EBIT and EBIT-D are used                       
Price/Earnings Ratio:       3x to 7x
Usual Terms:
       Down Payment:         Equity of 1 to 2x Earnings
       Plus:                          Owner financing - limited bank involvement


Main Street
Commonly refered to as "Mom and Pop" businesses.  Owner wears "all the hats."  
Earnings:                         Usually under $100K
Earnings Definition:          Discretionary Earnings            
Price/Earnings Ratio:       1x to 4x
Usual Terms:
       Down Payment:        80% to 120% of Earnings 
       Plus:                         Owner financing - Bank financing is rare


Definition of Terms:
EBIT  =  Earnings Before Interest and Taxes
EBITD = Above plus Depreciation
EBIT-DA = Above plus non-recurring and discretionary expenses
Discretionary Earnings = EBIT-DA plus Owner's Compensation

Note: Down payments or equity investments may exceed the levels indicated when inventories and other current asset values are high.

This article has been condensed from "In and Out of Business... Happily.

Email Webmaster -  submit@bizBookSoftware.com
To reach us call 1 508.794.1200

Copyright Parker-Nelson Publishing  1992 - 2013
bizBookSoftware.com is a division of Parker-Nelson Publishing  

Business for sale sites
  Want to trade links with us? Link Partners  Information for the press