2007 Fall/Winter Volume 7 No. 2
What is your business worth… really?
By Mike Adams, Managing Director
Lately, I’ve been hearing from friends and acquaintances in our industry, asking about what process to use to value their portable restroom service company. Perhaps tough market conditions in many parts of the country and/or the proliferation of consolidation efforts taking place in our industry are prompting some of you to consider selling your business.
We’ve covered this topic in previous issues of JohnTalk, but since I’ve had so many requests for this information, I thought it was time for a review of the basic valuation formula.
Show me Your EBITDA
To get a ballpark figure of what your company will fetch, you'll have to tackle something called EBITDA. This tongue-twisting acronym stands for Earnings before Interest, Taxes, Depreciation, and Amortization. It is a metric that allows you (and a potential buyer) to value your company based on its cash flow. It makes it easier to compare your business with other service companies that might be subject to different tax and depreciation rates and debt levels.
To calculate your EBITDA, you will probably need to work with your accountant. The process involves adding back items such as interest expenses and taxes into your net profit, then establishing the cost of depreciation, determining the cost of amortization and adding them back as well.
What is Your Price?
Once you have calculated your EBITDA, you must decide what multiple of that number you think is a reasonable price to ask of a potential buyer.
In my experience, portable restroom service companies have traditionally sold for multiples of three to six times EBITDA. Remember, these multiples are just a benchmark. Every company and every marketplace is unique.
Obviously, potential buyers will be willing to pay higher multiples for companies that have high quality, well maintained assets such as trucks and restrooms, high density routes, a solid reputation in the marketplace, growth potential, and are already profitable. In other words, if you’re running an outstanding service company you should receive an excellent multiple for it. If, on the other hand, you are at the lower end of the pricing spectrum in your home town, and, for example, run shoddy equipment, you are likely to be disappointed in the EBITDA multiple your company can command at the time of sale.
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