Acquisition Advisors | Ask the Expert: Industry Valuation Multiples
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31 Jan Ask the Expert: Industry Valuation Multiples

Question: What is the industry valuation multiple for the commercial heat treat industry? Also, is there a chart somewhere of the trends in multiples through the years?

Answer: There is no such thing. Some advisors or writers will try to “peg” a multiple for an industry, but it’s rather arbitrary, even silly. Some business owners try to think of multiples this way as well. Businesses sell for a wide range of values. Even businesses in the same industry sell for widely ranging “multiples.” This is because:

  • Businesses all have unique characteristics. unique combinations of value drivers and barriers to marketability.
  • Multiples expand and contract over time due to factors such as changes in the strength of the overall economy; changes in the cost of capital; changes in the supply-demand balance (between buyers and sellers in the industry at any particular time); and the quality, quantity and aggressiveness of buyers at any given time.
  • Larger companies sell for higher multiples.
  • Business owners go about selling in various ways. HOW a business is sold greatly impacts the ultimate sale price (and thus the multiple).

Similarly, there is no chart that shows industry valuation through the years. Almost all companies in the heat treat industry are private, and neither buyer nor seller releases terms of sale/purchase when deals are done. That being said, businesses in the heat treat industry sell for less than manufacturers of proprietary products, and more than retail businesses and many types of service businesses.

Now, my firm does some proprietary data on a handful of sales of commercial heat treat companies, but the count is too low to speak to the overall market. Even so, the prices as a multiple of EBITDA range from 3 to 6. Based on my experience, I’d say this is about the range a seller can expect for profitable companies in the industry. Three times on the very low side (a company that is profitable but with some real weaknesses) and about six times on the very high side, i.e., a firm with lots of positive characteristics, good diversification, management willing to remain and—almost certainly— solid growth.

Incidentally, several of the selling firms that we have data for did not have an EBITDA multiple because they did not have positive EBITDA. The values as a multiple of sales ranged from 0.3 to 1.25. Again, this is a very wide range of values.

  • Rena
    Posted at 18:32h, 26 February Reply

    I have a small wheelchair van company that I have owned and operated for 18 years. I am trying to figure out the value of the company so I can sell it. I have a formula, but I need to know the wheelchair van transportation industry’s multiples. Do you know? Where can I find this? Thank you

    • David Perkins
      Posted at 13:16h, 08 March Reply

      Rena, thank you for your question. I don’t think you will find a “wheelchair van transportation industry multiple” anywhere. At least not a credible one. Every business is unique, and has unique characteristics. A one-size-fits-all multiple would not take this into consideration. Business valuation is much more of an “art.” And the real question is, what will buyers pay for the business. You can “figure” price all you want but its meaningless. Again, what can you get buyers to offer and pay?

      I’ve written a lot about these topics. Call me any time if you’d like to discuss. Our contact information is on this website.

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