Know what scale means for your future exit event
We meet with many private business owners on a regular basis to discuss their future exit options. A common part of this dialog is our sharing what qualities their company should possess in order to attract the greatest amount of interest from third parties one day and the greatest valuation. Each industry has uniqueness in this regard but one quality the vast majority of acquirers find attractive is your company having scale.
Company scale relates to the size of your business revenue and profit. Acquirers know that buying a business is hard work so to make this hard work worthwhile, they like there to be some level of minimum size, or scale, to the business. Are there exceptions to this? Certainly there are, but they are the exception not the norm. The norm is acquirers know it’s just as difficult (and sometimes more difficult) buying a $2M annual revenue company than it is to buy one generating $20M of revenues. At the end of this hard work, they’d much rather be owning and working with the scale of that $20M company than the significantly smaller one. And, acquirers will very often reward the scale by applying a higher exit multiple to the transaction. As an example, the $2M revenue company might receive a 4x exit multiple (4x your company’s prior 12 months of EBITDA profit). But the very similar in nature but much larger $20M revenue business will be rewarded for their scale with perhaps a 6x exit multiple. Both companies serve in the same industry, serve similar customers, offer similar products/services but the exit multiple applied by the acquirer will be different simply rewarding the larger financial performance scale.
Each industry has uniqueness in terms of what scale means, give us a call (949.874.0787) and we can provide more industry specific guidance. Learn today what scale means in your industry and use time as a friend to build toward this scale so that you will be euphoric when your company sale event occurs one day.