How much is my company worth? What a loaded question. Tell me the identity of the buyer and why they are buying your company, and I will tell you the price/value range.
- If you’re selling to a financial ‘show me the money’ buyer, you are talking ‘today’s’ multiple of free cash flow:
Multiples of [EBITDA – (Change in Net Working Capital) – (Capital Expenditures)]
Historic multiples have been as low and two to three and as high as nine. A conservative view would be below five times Free Cash Flow.
- If you’re selling to a strategic buyer, your price is bounded by the actual value you bring to the buyer’s company. This would be calculated as
The Marginal Net Income x the buyers P/E Ratio.
Typically, a buyer will purchase your company for a product that they can put through their much larger distribution system. Your product is complimentary or strategic to the buyer’s product, and the buyer’s current customers are apt to buy your product. The logic goes “each sales person will sell one of your widgets with each widget of his,” This can have huge potential value to this buyer, and is typically why you see a large company pay a large price for a small company
- If you’re selling to a venture capitalist, your value will be bounded by how much capital is being invested, at what stage of the company’s life, and the prior financing round values.
- If there are comparable companies with comparable transactions—those multiples will typically be your metrics.
- PSR – Price to Sales Ratio
- P/E – Price to Earnings Raio
Relevant comparable company transactions trump all.
And as we forewarned, these are all guidelines, not rules. The variability is enormous