Archives for February 27, 2018

Similar Companies Can Have Huge Value Differences

Can two companies in the same industry have very different valuations? In short, the answer is a resounding, yes. Let's take an example of two companies that both have an EBITDA of $6 million but with two very different values. In fact, Business One is valued at five times EBITDA, which prices it at $30 million whereas Business Two is valued at seven times EBITDA, meaning it has a value of $42 million. Value Difference Checklist Revenue Size Profitability The Market Growth Rate Regional/Global Distribution Management & Employees Capital Equipment Requirements Systems/Controls Uniqueness/Proprietary Intangibles (Intellectual property/patents/brand, etc.) There are quite a few variables on the above checklist that stand out, with the top one being that of growth rate. Growth rate is a major value driver when buyers are considering value. Business Two, for example, with its seven times EBITDA has a growth rate of 50%, whereas Business One, with its five times EBITDA has a growth … [Read more...]

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