How Much is My Company Worth?

Your valuation is calculated based on a blend of two common valuation methodologies:

1. Revenue Multiple Method: We multiply your trailing twelve-month (“TTM”) revenue by the enterprise value (“EV”) / TTM Revenue multiples derived from a group of selected peer companies.

2. EBITDA Multiple Method: We multiply your TTM EBITDA by the EV/TTM EBITDA multiples derived from a group of selected peer companies.

For each method, we calculate a high and low enterprise value range based on the corresponding multiples from your peer group. Then, we calculate the median of the high values and the median of the low values from each method to determine your final enterprise value range. The mid-point is the mid-point between the high and low enterprise values.

Selecting appropriate publicly traded peer companies is highly subjective. Here are some guidelines we follow when selecting comparable companies:

1. Similar Industry / Business Model: We seek companies operating in the same or closely related industries or with similar business models, products, or services.

2. Size Consideration: While large public companies may operate in your industry, they might not be ideal peers if your company is substantially smaller. We try to select companies that are relatively close in size (revenue, employees) whenever possible. However, in many industries there are no publicly traded comparables that will be the same size as a privately owned company.

3. Growth Profile: We seek companies with similar revenue or earnings growth characteristics. For example, a high-growth tech company would have different valuation metrics than a mature, low-growth company in the same sector.

4. Profitability: We seek companies with similar profitability margins when possible, as valuation multiples often correlate with profitability.

5. Geographic Focus: We seek companies operating primarily in similar geographic markets may face similar market dynamics. In addition, companies in different geographies may have different risk premia associated with them resulting in divergent valuation multiples.

Note: Companies that are significantly smaller than public peers or have much lower margins after adjusting for standalone costs may be valued much lower than the implied valuation based on publicly traded peers.

If the valuation range varies significantly it could be due to a number of factors including:

1. Issues with the Peer Group: Companies with very different business models, sizes, margins, or growth rates can significantly impact the valuation by skewing multiples higher or lower than is appropriate for your business. In addition, some peers may trade at significantly different revenue and EBITDA multiples relative to peers for issues that are unique or transitory. Adding or removing peer companies can help to narrow the valuation range. If you have questions, please contact Keene Advisors for more information.

2. Lack of Profitability: The valuation in this report is based on a blend of revenue and EBITDA multiples. If your company or the peer companies have negative EBITDA or significantly different EBITDA margin profiles it could skew your estimated valuation. Consider selecting peers with more similar EBITDA margin profiles or evaluating other valuation benchmarks (DCF, precedent transactions, etc.).

3. Review Financial Inputs: Ensure your TTM Revenue and EBITDA figures are accurate and reflect your company's most recent performance. Remove any one-time or non-recurring items from your financial inputs to normalize your EBITDA.

4. Consider Industry-Specific Factors: Some industries value certain metrics more highly than others. Research industry-specific valuation approaches that might better reflect your company's value. For example, some industries may be valued off multiples of book value or net income.

5. Look Beyond Multiples: While this tool focuses on multiple-based valuation, consider other methods like discounted cash flow (DCF) analysis, precedent transaction analysis, or leveraged buyout (LBO) analysis for a more comprehensive view of your company's value. Contact Keene Advisors for a consultation.

There are many approaches to improve your valuation. We have published a blog post on strategies you can access here (see link: https://www.keeneadvisors.com/news-and-insights/generate-pe-returns-for-private-shareholders). Below you will find several practical tips to increase your company's valuation:

1. Accelerate Growth: Companies with higher revenue growth rates typically command higher valuation multiples. You can improve growth with a carefully designed value creation plan that includes organic and acquisition growth opportunities.

2. Profitability: Improving your gross margins or operating margins which will improve cash flow and increase your EBITDA. Consider strategies to improve your pricing with current vendors or make your current operating structure more efficient.

3. Increase EBITDA: EBITDA addbacks and pro forma adjustments could represent over 50% of the total value you could achieve through a sale transaction. Addbacks can include Standalone and Private Company Costs, One-Time and Non-Recurring Costs, and Pro Forma EBITDA Adjustments. For more information, click here: https://www.keeneadvisors.com/news-and-insights/maximizing-business-value-ebitda-addbacks.

4. Customer Diversification: Reducing dependency on a small number of customers can lower risk and increase valuation.

5. Competitive Advantages: Developing proprietary technology, brand recognition, or other competitive advantages can enhance your valuation.

6. Scalability: Businesses that have significant operating leverage and can scale without proportional increases in costs are typically valued higher.

7. Long-term Customers and Recurring Revenue: Business models with long-term customers or recurring revenue (e.g., subscriptions) generally receive higher valuations.

8. Expand Total Addressable Market: Companies in large and growing markets tend to receive higher valuations. Explore opportunities to accelerate growth in your existing market or enter new markets to expand your total addressable market opportunity.

Selling your Company is a significant undertaking. We have published information on key insights to set up your sale process for success (see link: https://www.keeneadvisors.com/news-and-insights/news-and-insights/ma-setting-the-foundation-for-selling-your-business). Before you launch the process, ensure you have:

1. Financials: Your financial statements must be accurate, up-to-date, and ideally audited or reviewed by a reputable accounting firm. You will need a detailed financial projection model and should prepare pro forma adjusted EBITDA calculations as well. For more information, click here: https://www.keeneadvisors.com/news-and-insights/maximizing-business-value-ebitda-addbacks.

2. Operations: Streamline operations, resolve any legal issues, and ensure all contracts and agreements are well-documented.

3. Value Creation Plan: Develop a clear growth plan that potential buyers can execute to create additional value.

4. Management Team: Build a strong management team and ensure that key employees are incentivized to execute a successful sale and, as needed, to stay and create value post-sale.

5. Customer Relationships: Strengthen and document customer relationships, especially with key accounts, wherever possible.

6. Intellectual Property: Ensure all intellectual property is properly protected and documented.

7. Data Room: Prepare a comprehensive data room with all relevant company documents and information.

8. Advisor Selection: Engage experienced M&A advisors, attorneys, and accountants to guide you through the sale process.

A successful sale process typically requires several types of professional advisors:

1. Investment Banker or M&A Advisor: Helps value your business, prepares marketing materials, identifies potential buyers, and negotiates deal terms.

2. M&A Attorney: Specializes in structuring the transaction, drafting legal documents, and addressing legal issues that arise during the process.

3. Accountant or Tax Advisor: Helps with financial due diligence, tax planning, and structuring the deal to minimize tax implications.

4. Wealth Manager: Assists founder / owners with planning for the proceeds from the sale and managing post-transaction finances.

5. Industry Consultant: Sometimes needed to help position the company's technical aspects or address specific industry-related questions.

6. Business Broker: For smaller businesses, a business broker might replace an investment banker, though with typically less comprehensive services.

The complexity of your business and the size of the transaction will determine which advisors are most important for your specific situation.

The valuation of your company, or the Enterprise Value, is the starting point for calculating your net proceeds. Here's an illustrative breakdown of the typical components:

Enterprise Value

Plus: Cash & cash equivalents.

Minus: All outstanding debt.

Minus: Deficiency in Working Capital (If the amount of working capital that is delivered to the buyer at closing is less than the "normalized" level of working capital the buyer will deduct the difference from the Enterprise Value).

Plus: Excess Working Capital (If the amount of working capital exceeds the "normalized level" of Working Capital for your company, the difference will be added back to Enterprise Value).

Minus: Transaction Expenses (including costs like investment banking fees, legal fees, accounting fees, rep & warranty insurance fees/premiums, and other fees and expenses required to complete the transaction).

Minus: Transaction bonuses or incentive payouts to employees (Owners may elect to provide non-stock incentives to employees to reward them as part of a sale or as incentive payment to help execute the sale process).

Minus: Escrow Amount (A portion of the total enterprise value may be held in an escrow account for a period of time to provide a source of funds for the buyer in the event of a breach of a rep & warranty or other post-closing issues. Eventually amounts held in escrow may be delivered to the sellers once all conditions have been met).

Minus: Taxes (Capital gains taxes and other tax obligations. Tax implications vary widely based on: Deal structure (asset vs. stock sale), your company's tax status (C-Corp, S-Corp, LLC, etc.), state tax laws, among other factors).

Equals: Net Proceeds to Seller.

Note: This is a simplified framework. For an accurate calculation of your potential net proceeds, consult with your tax advisor and M&A professionals. Transaction structures vary widely and can significantly impact your after-tax proceeds.