The value of a business to an acquirer is dependent upon the risk they perceive to the future profits of the business.
An acquirer is buying the future profitability of a business fonte dell’articolo. It is natural therefore, for the value of a business to be expressed as a multiple of the annual profits (EBITDA – Earnings Before Interest Taxes Depreciation and Amortisation). The multiple can be considered to be inversely proportional to the degree of risk perceived by an acquirer: high risk, low multiple; low risk, high multiple.
For example, the acquirer might perceive a 50% risk of losing the current profitability, which would lead to a profit multiple of only 2 times EBITDA. On the other hand, if you have worked over a number of years to reduce the risks to profitability they may perceive that the risk to profitability is only 15%, in which case the multiple would be 6.7.
Another way to look at this is that if the acquirer sees investing in your business to be low risk then they may be satisfied with a relatively modest return on investment, say 15% per year. Purchasing the business for 6.7 times EBITDA would give them a 15% return and they would get their investment back in six years if nothing changes. On the other hand, a purchase perceived as high risk, might lead them to want a return on investment of 50% per year so they get their money back faster (within 2 years in this example).
Our expert exit strategists will help you to identify the critical risks in your business and put mitigation plans in place to protect value that you have built up and to maximise the multiple you can expect to achieve when you come to sell your business.