Blog Viewer

Great Financial Results for One Year – Should You Sell?

By Tom Cobery posted 11-13-2015 09:32 AM

  
If you are achieving outstanding financial results during this current fiscal year and expect the results to be record breaking by year end, maybe it’s time to consider a sale of the Company. For example, if sales have increased by 6% each year for the last 3 years, but this year you should show a 20% improvement in revenues and even more for Adjusted EBITDA Results. What should you expect if you take the Company to market?

In formulating a purchase price a buyer will start by taking a weighted average of the last three years’ Adjusted EBITDA. A buyer is not likely to pay the seller based on a multiple of one year. If the seller focuses only on the current year they will have to show, in very tangible terms, that these results will continue on in further years. If the buyer is satisfied that the results are likely to continue, they possibly will formulate a purchase price based on the current year, but will likely require a significant hold back. The hold back will be paid out over a few years based on the selling company meeting or exceeding agreed upon financial results. A buyer needs to believe that the future financial results will occur, and have insurance that if the results are not met, they are covered for the shortfall. Buyers want to see a track record over time that gives them comfort that what they are paying for, a multiple of Adjusted EBITDA over time, is likely to happen.

If a seller wants to be paid based on one year’s results they should expect a significant hold back (Earn Out) to be part of the final negotiated purchase price.

If you want to chat, give me a call at 201-523-6326 or e-mail me at tcobery@epicomm.org.

0 comments
128 views

Permalink