Value Drivers - Business Valuations by VR Business Sales New Haven

Value Drivers

VR Business Sales New Haven(203) 772-3773www.vrnutmeg.com

Value Drivers OverviewGenerally, strategic buyers, financial buyers and private equity investors pay multiples between 3-6x Adjusted EBITDA when purchasing a business.

Adjusted EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortization where the EBITDA is adjusted for unusual expenses and compensation and normalized to more market based benefits and compensations required to operate the business.

External and internal factors of a business that affect buyer perception of value are known as value drivers. The following slides present these factors and quantifies the characteristics impacting value by the multiple derived.

New Haven, CT(203) 772-3773www.vrnutmeg.com

Value Drivers (multiples of adjusted EBITDA)

3.0x-5.0x<3.0x 6.0x+

• Little to noaccounting systems

• No CPA involvement

• One man operation /no management teamdepth

• No professional accounting staff

• Limited informationsystems

• Compiled or Reviewed financials

• One or two person senior management team

• Controller on staff

• Sophisticated information systems

• Audited financials

• Well rounded management team

• Full time CPA/ CFOon staff

MANAGEMENT & FINANCIALS



3.0x-5.0x<3.0x 6.0x+

• Completely discretionary

• Small market size that is shrinking

• Boom or bust

• Heavy Gov’t pressures/regulation that constrain the business

• Should/need to have your solution

• Low market growth

• Cyclical business; correlated to GDP

• Heavy Gov’t pressures/regulation that promote the business

• Product/service is “non discretionary”

• Large market; growing rapidly

• Steady business; grew through the recession

• Little Gov’t involvement

INDUSTRY AND END MARKETS



3.0x-5.0x<3.0x 6.0x+

• Top 3 suppliers >90% of revenue

• No contracts

• Suppliers can sell directly to your customer base

• Core operations outsourced to supplier

• Top 10 supplier <50% of revenue

• Annual contracts

• Occasional/hybrid competition

• Painful to switch suppliers but not a death blow

• No supplier more than 5% of revenue• Multi-year supply agreements with exclusivity• Easy to bring in new suppliers

• Exclusivity/non compete as part of contract

SUPPLIERS



3.0x-5.0x<3.0x 6.0x+

• Super commodity products with low margins

• Thousands of competitors; no differentiation

• Easy for new competitors to spring up and copy what you are doing

• Limited alternative to your products with average margins

• New entrants would require significant investment to compete

• Balanced market share across the industry

• Proprietary products with high margins

• Market leader with few competitors

• Significant capabilities that would be hard to recreate

COMPETITION



3.0x-5.0x<3.0x 6.0x+

• Top 3 customers >90% of revenue• MSA with PO’s

• Owner takes all the phone calls from customer

• Local mom/pops are only customers

• Top 10 customers <50% of revenue• Annual contracts

• Dedicated salesman on the team

• Middle market/regional businesses

• No customer more than 5% of revenue• Multi-year contracts• Blue chip multi-nationals• Full sales team that manage customers

CUSTOMERS

• Lumpy/project revenue

• Small, recurring purchases• Mix of one-

time/recurring revenueNew Haven, CT(203) 772-3773www.vrnutmeg.com

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VR Business Sales New Haven(203) 772-3773

941 Grand AvenueNew Haven, CT 06511

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Value Drivers - Business Valuations by VR Business Sales New Haven

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