Business Valuation Multiples by Business Size and Industrial Sector

– Business Valuation Multiples by Industrial Sector –

I recently read some very interesting information in an article from Pratt’s Stats.  The article contained charts showing business valuation multiples broken down by size of business, as a multiple of Net Sales, Seller’s Discretionary Earnings, and EBITDA – over the past 15 years.  And there are charts showing median valuation multiples per sales in 2016 for businesses in eight major industrial sectors, plus all industries as a group. Finally, there’s a chart showing the 2016 valuation multiples per SDE for the eight major industrial sectors, plus the median operating profit margin for the same industrial sectors, plus all industries as a group.

The Pratt’s Stats database includes over 26,714 transactions in which a privately held company was sold to either a private or public buyer.

While all this information is interesting, all the numbers provided are just averages.  Every business is unique, and has differences that make it more or less attractive than the average business to potential buyers.  It takes a trained M&A professional, or a professional independent business appraiser, to advise a business owner who is interested in learning the value of his or her company.

Here’s a brief summary of some of the information contained in this article:

     Summary of Charts

Median Valuation Multiples by Revenue Range

                                             2015     2016     2017
Revenue Range                      MVIC/Revenue
$0 – $1M                               0.46      0.48      0.57
$1M – $5M                            0.40      0.46      0.45
>$5M                                      0.54      0.58      0.48

                                                   MVIC/SDE
$0 – $1M                              2.12      2.03      2.12
$1M – $5M                           2.79      2.91      3.24
>$5M                                     3.62      3.56      3.58

                                                 MVIC/EBITDA
$0 – $1M                              2.78      2.86      3.69
$1M – $5M                           4.33      4.27      5.42
>$5M                                     5.19      6.25      4.30

           Median Valuation Multiples by Sector

                                                         2014     2015     2016
Sector                                     MVIC/Sales – Private Buyers
Agriculture, Forestry & Fishing        0.55     0.51      0.57
Construction                                     0.42     0.44      0.46
Manufacturing                                  0.52      0.54     0.58
Transport, Commun, Elec, Gas        0.60     0.70      0.75
Wholesale Trade                               0.41     0.37      0.39
Retail Trade                                       0.34     0.34      0.35
Finance, Insurance & R/E                 0.69      0.91     0.74
Services                                             0.55      0.49     0.55
All Industries                                     0.47      0.45     0.48

Median MVIC/SDE and Operating Profit Margins for 2016 – All Buyers

        MVIC/SDE      Operating Profit Margin

                  1.75                          18.0%
                  2.45                            9.0%
                  3.05                            7.0%
                  2.50                            9.0%
                  3.05                            6.0%
                  2.10                            7.0%
                  2.35                           15.0%
                  2.10                             9.0%
                  2.35                             9.0%

MVIC: Market Value of Invested Capital aka Sales Price of Business
SDE: Seller’s Discretionary Cash Flow
EBITDA: Earnings before Interest, Taxes, Depreciation, and Amortization

If you’d like to read the entire article, click HERE, or copy and paste this link in your browser:  https://www.dropbox.com/s/10c51mrzfp11nst/Pratt%27s%20State%20Update.pdf?dl=0

The Summit Acquisitions Group — Business Brokers and M&A Advisors — specializes in the sale, appraisal, and financing of privately owned companies ranging in valuation from $500,000 to $5,000,000. Contact their offices in Atlanta, GA or Charlotte, NC for a free consultation.