BEYOND EBITDA – 5 OTHER FACTORS THAT AFFECT HOW PRIVATE EQUITY BUYERS VALUE YOUR COMPANY
Prospect Partners is one of the largest and most active private equity buyer focused on acquiring companies with revenues of >$10M but <$75M. A couple of years ago they released an article with this same title, and I thought it was so well done I’m reprinting the highlights here. If you’d like a copy of the complete article, contact me and I’ll send it to you.
It is no secret private equity firms are focused on the bottom line. Profit margins, EBITDA, and growth all impact the value of a business. However, objective measures aren’t the only drivers of valuation. Here’s a look at five subjective variables that play roles in how investors value smaller companies because of their potential future impact on the business.
1. Who Runs The Shop … And How Well?
How deep is the team?
Is there a succession plan?
Has the owner invested in people in the key areas of the business?
2. What Does The Market Look Like?
Is the business growing faster or slower than its market?
How is growth being driven?
Is growth sustainable?
3. What About Concentrations?
Relationship concentration?
Market segment concentration?
4. How “Full” Is The Business?
The building?
The equipment?
5. Are There Any Human Resources Concerns?
Health insurance issues?
Employee documentation in order?
Minimum wage impact?
Labor pool availability?
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As ever, if you know of a business owner who’s thinking of selling or buying a business and who might benefit from a free, confidential, consultation with us, have them contact me directly at mike@tworld.com or call anytime at 321-287-0349. You can also
