Business Valuation Trends
Owning and managing a business hopefully comes with lots of stable and ‘normal’ times but it also comes with extreme highs and lows and lots of drama in between. In September 2008 the Great Financial Recession hit hard and hit every business in the US and reverberated around the world considerably lowering their valuation.
Over the last 6 years the economy has stabilized and continues to grow but we feel like we are still in recession. It is therefore constructive to look at the business valuation data to see where we have come from and where we are going.
Pratt’s Stats is a company that collects data on the merger of and acquisition of privately held businesses and just concluded a recent analysis of 2013 data. Here’s some of their highlights which shows business valuations are getting stronger and returning to normal levels.
Business valuation trends
- Business values are on the rise:
- The median selling price to EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) was 2.96 times which was up slightly from 2.88 times in 2012.
- Manufacturing was the major sector with the greatest median selling price to EBITDA at 5.69 times.
- Retail was the sector with the lowest at 2.01 times
- The Tech sector, which is considered a subsector of the ‘Services’ industry continues to have a very impressive median selling price to EBITDA at 12.98 times in 2013.
- Public companies buying privately held companies are much more aggressive with their acquisitions. The median selling price to EBITDA was 9.55 times while individuals buying companies was 2.78 times.
- The size of revenue also matters. That is, the highest net sales tend to have a larger median selling price to EBITDA ratio than the companies with lower net sales. The actual numbers were not provided but breaking down the amount of revenue into five equal sized quintiles, the ratio declines from 6.02x to 3.13x to 2.63x to 2.45x to 2.00x, respectively.
Healthcare valuation multiples increase slightly
Despite all the change in the healthcare industry due to the Affordable Care Act, Mergers and Acquisition activity is returning from the data put together by Frost and Sullivan. Frost and Sullivan employ approximately 1800 analysts world-wide to analyze the growth of companies, identify opportunities and best practices. The segments they expect to attract the most activity include post-acute care, surgical and emergency center segments.
Small online business valuations
Another company called Digital Exits looked at what is happening with the value of small businesses that specialize in selling online products or services. Their study was of 250 sales transactions and here’s what they found.
- The average sale price of an online business that sold was $514,725
- On average, the final sale price was 90% of the asking price
- E-commerce and advertising websites were able to attract the highest multiple at 2.6 times earnings
- For websites that generated leads, they had the lowest multiple at 1.8 times earnings
- The study is adding the 2013 data and it expects the average multiple to increase from 2.6 to 2.8 times earnings.
Are you ready to sell your business? Would you like to know the value of your business? How about own and operate your own franchise?
If you would like more information please visit my webpage Rogerson Business Services. If you would like more immediate help you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.