Source for an Industry's Avg. Valuation Multiplier (for Selling a Business)?

[GameOver]

I'm at the beginning of my journey. I've had a couple of business ideas that I think have good scale and magnitude. I'm trying to whittle those down now based on my personal likes and what I think will have the highest Wealth Acceleration Factor (WAF) for me.

One thing I am fascinated by is a very brief section in Fastlane where @MJ DeMarco talks about the average valuation multiplier applied to your annual margins to determine the sale price of your business. (In other words a company that nets you a million a year might sell for anywhere from a million to 17 million depending on what industry you're in).

I've been looking through old college text books and digging through various online resources and am having trouble finding this information. I have found a few free websites but the information seems... unreliable.

Anyone have any idea where I could find a basic outline of factors by industry?

I'm just trying to maximize as much as I can up-front....

 

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[MJ DeMarco]

Anyone have any idea where I could find a basic outline of factors by industry?

The PE of publicly traded companies.

An 8 PE is an 8 multiplier.

 

[jon.a]

Business Valuations & Selling Multiples BY INDUSTRY

EBITDA Multiples by Industry Chart

Value to Operating Income

Cognient Advisors :: Resources :: Quarterly Valuation Multiples Report :: Q1 2017 Valuation Multiples Update

Google is your friend.

 

[tetal]

Try BizBuySell for private businesses:

BizBuySell Insight Reports

 

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[GameOver]

Thanks guys. I found all those links before I posted, but some were not very detailed, the university sources were wildly different in numbers from one another, and so on. About the best-looking data to my casual eye that I could find was the one from Cognient Advisors.

I didn't realize the sale price factor was the same as P/E for public corps., so MJ's comment helps a bunch.

I think I'm going to use the Cognient report as a starting point to zero-in on a potential industry, and then I think I will write a quick script to pull-down and calculate P/E for multiple listed companies in a niche genre of that industry I am thinking-about and sort of do a "price comp" on them, to see what the factor might really look like. If my interests and the factors align I might be on to something!

I'm really taking MFL to heart... I've determined where I want to be, and now I am trying to reverse-engineer may way into it.

 

[Kid]

Basically you can get 10x your yearly profit if that's a big business (mln to bln).

If its small website then around 3x (source: https://empireflippers.com/marketplace/)

 

[amp0193]

I'm at the beginning of my journey. I've had a couple of business ideas that I think have good scale and magnitude. I'm trying to whittle those down now based on my personal likes and what I think will have the highest Wealth Acceleration Factor (WAF) for me.

Interesting, and very rational, way to pick a business to get into.

It's always good to plan with the end goal in mind!

 

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[Greg R]

If you are looking for private company SDE or EBITDA multiples, go to the library, specifically one with a business section. You will find a book called "RMA Anual statement Studies." This is a huge book that covers every industry of businesses bought and sold. One of the most reputable sources that I've found. Also check out BVR.

 

[Greg R]

If you are looking for private company SDE or EBITDA multiples, go to the library, specifically one with a business section. You will find a book called "RMA Anual statement Studies." This is a huge book that covers every industry of businesses bought and sold. One of the most reputable sources that I've found. Also check out BVR.

If you are looking for private company SDE or EBITDA multiples, go to the library, specifically one with a business section. You will find a book called "RMA Anual statement Studies." This is a huge book that covers every industry of businesses bought and sold. One of the most reputable sources that I've found. Also check out BVR.

Also note that multiples differ greatly between private and public companies.

 

[GameOver]

RMA Anual statement Studies

Thanks for this; it sounds like exactly what I am looking for. There's a university nearby with a very large library and business school that I am an alumni of... I am going to check and see if they have this book this weekend.

 

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[GameOver]

First, thank you @Greg Rutkowski my local university did in fact have that book.

So from what I am seeing, it looks like for larger public corporations those businesses are evaluated based on their P/E, but for smaller non-public businesses it is often a multiple of EBITDA, or sometimes a multiple of SDE. With a failed business its value might simply be the assets the business owns. Does that sound about right to folks so far?

It seems like a big part of the factor has to do with anticipated future growth... businesses that are thought to have a lot of upside growth potential have a higher multiplier, at least that is what I think I am seeing. There's something called a PEG ratio that I sometimes look at when evaluating stocks for my portfolio and I have recently noticed some correlation with business value there. Not always but sometimes. Also sound about right?

So the next thing I have been thinking a lot about... I think high-growth businesses fall into at least two categories... 1. Those that have a lot of growth potential because the market for them is emerging rapidly... they haven't existed before, and the consumer really wants the emerging item, or 2. Markets that are very stable because there are high entry barriers, but when someone actually breaks in they have a lot of potential to modernize the sector and grow rapidly. Can anyone think of any other conditions that might be the reason a company is high-growth?

 

[fastbo]

They do seem to vary from 4x to 12x over those free lists for the same industries. 4x EBITDA doesn't seem worth the effort. But 12x... that's a game changer.

Thanks guys. I found all those links before I posted, but some were not very detailed, the university sources were wildly different in numbers from one another, and so on. About the best-looking data to my casual eye that I could find was the one from Cognient Advisors.

I didn't realize the sale price factor was the same as P/E for public corps., so MJ's comment helps a bunch.

I think I'm going to use the Cognient report as a starting point to zero-in on a potential industry, and then I think I will write a quick script to pull-down and calculate P/E for multiple listed companies in a niche genre of that industry I am thinking-about and sort of do a "price comp" on them, to see what the factor might really look like. If my interests and the factors align I might be on to something!

I'm really taking MFL to heart... I've determined where I want to be, and now I am trying to reverse-engineer may way into it.