We are seeing increased M&A activity in the smaller, closely held space (mainly subs & specialty GCs). In looking at financing packages, banks typically strip out goodwill and focus on hard assets for collateral purposes. That said, I have heard numerous rules of thumb for valuing smaller companies to include the following; 1) start with book equity, adjust for market value of equipment and remove any intangibles for a rough value; 2) 3-5x normalized EBITDA (assuming this is not heavily managed for exec comp, etc.); 3) 1-3x revenues assuming other rules hold mostly true. Does this change if it's an asset vs. equity sale and how does existing debt get dealt with, i.e. who typically assumes this?
Any thoughts?
Thanks!
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Marc Hendrikson CPA, CGMA, CCIFP
Senior Vice President
Centennial Bank & Trust
Denver CO
(720) 873-3754
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