There are a vast number of factors that affect the multiple a business may receive in the market. There’s financial statement quality, owner dependency, customer concentration, barrier to entry, capital intensity (amount of equipment needed to operate), location, profitability, management, customer contracts and recurring revenue.
Revenue at 40-60% of annual sales and SDE at 2-3.5x and EBITDA at 3-5x – Most main street and lower middle market businesses will fall into these ranges. Generally, the larger the business the higher the multiples due to lower perceived risk. What characterizes the low end and high end of these ranges.
Low End
Retail businesses relying on walk-in customers. Minimal barriers to entry.
Low capital intensity.
Little repeat business.
Low employee loyalty.
Businesses entirely dependent on a single owner.
Low profit margin.
High End
Annual or multi-year contracts.
Contracts are documented and transferrable.
Repeat business (recurring revenue).
Product differentiation.
High profit margins.
Superior location with a multi-year lease.
Strong management team with low owner dependency.
Capital intensity (specialized equipment is needed to operate).
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