How to Value a Private Company Part 2 - Case Study Examples

[@SuperHacker38]

This was really well written, narrated and presented. Thank you for this, it’s been extremely helpful.

[@financekid3163]

Glad it was helpful!

[@moshawqy]

Best in class, don’t think I watched another video more informative and detailed as the 2 parts here.

[@financekid3163]

Glad you enjoyed it!

[@samueljoseph4167]

Amazing video! Very hard to find actualy case studies on youtube for small business valautions. Thanks for sharing this!

[@financekid3163]

Glad to hear! Hopefully you found it valuable!

[@himansupatel9982]

Great info. Thank you. Where do I get multiplier for Australian businesses

[@ricecube5079]

Thank you I’ll have to listen to this again and take notes

[@financekid3163]

Thanks for listening!

[@Clem_dow]

Hi thanks for these videos, they're great!! At 22:35, you inform us how the factors are used to refine the range. how do you arrive at 4 to 4.5 though. What's the math behind that range?

[@financekid3163]

There is no mat behind it, what I am trying to communicate is that within a standard valuation range of say 4x to 5x, based on the qualitative factors in the case study, where does the business land, on the top or bottom end of this range? In terms of getting the 4x to 5x valuation range, this is what the standard market comps are for the business, again less about math and more about what the market is willing to pay. In M&A, its all about what the market is willing to pay.

[@godlyconversations1]

Great video. Very clear explanations and easy to understand

[@financekid3163]

Thanks for watching!

[@illamaxilla]

Let me know when you start your school on M&A. You are amazing for these gems.

[@financekid3163]

Hahaha its on my vision board to develop a training program for buyers, I appreciate the support!

[@biggdaddy9227]

Excellent. Helpful. Useful.

[@johnpitso6568]

Great information. I would really appreciate learning how you approach calculating the Required NWC (Target) value / (Target Working Capital). Thank you very much for the insight.

[@financekid3163]

Check out my working capital video on the channel! Its already there :)

[@johnpitso6568]

@@financekid3163 Thank you very much 🙂

[@derekcummings3972]

Very, very helpful!!

[@gow2ilove]

Great video as always

[@dragonman74017]

Can you please let me know how you come up with the NWC Target?

[@financekid3163]

Check out my channel, there is already a full video on how to calculate the NWC target.

[@scotolivera8207]

Wow , Amount of information just incredible thanks

[@skrapsaker2035]

Great video! High quality and very pedagogical! Thank you!🙏

[@financekid3163]

Thank you! Stay tuned for more great content!

[@HarshdeepSingh-z8x]

Great content, Thanks! I wanted to ask if we are doing these deals and on Cash & Debt Free basis, how about to calculate our purchase price, we don't include Cash and Long-term debt in our calculation and purchase price then is Adjusted EBITDA multiple (Enterprise Value) + Target NWC adjustment? Assuming seller pays it's debt on closing and cashes out as well.

[@financekid3163]

Yes this is correct. To rephrase your statement, companies sell on a cash-free/debt-free basis with a normal level of working capital. The value of the business based on EBITDA. Any excess/deficit net working capital is added to the enterprise value to get the final net purchase price. Thanks for watching!

[@DeargRosso]

How are you calculating your OPEX % relative to your examples please? thanks for content

[@financekid3163]

It would be OPEX divided by sales

[@yoloyolo3003]

How would you get information such as the average EBITDA multiple by company size?

[@DeargRosso]

I notice in all of your calculations the buyer expects the net debt to be cleared as part of the buy out. Would this be true for mortgages where the business is so far repaying on time and able to afford and if not how would you adjust for such a liability on the balance sheet or would you for sure build the outstanding mortgage value into the valuation and ensure it is paid once the sale is confirmed? Thanks

[@rohits7538]

Excellent content, Thanks ! Could you please explain if the useful life of the Fixed Asset base (like PP&E), like capital assets replacement history also needs to be evaluated as part of the BS analysis and HOW. What if the buyer gets to know at the time of acquisition that the target's fixed assets are already depreciated say 70-75% on the books and replacement would be required in the near future, how would you evaluate such situation from the Purchase price adjustment and Valuation perspective (EVtoEquity bridge). Thanks in advance.

[@hiteshkumarpatel392]

Thank you. Very informative video. I got question What taxes are we going to count in EBITDA ? Is it property tax, Payroll Tax & sales Tax in case of Retail (C Store)? Because Personal income tax goes to owners 1040 so it is already not in company P&L.

[@financekid3163]

Good question, EBITDA refers to income taxes only. Property taxes are a real estate cost that usually is carried on under new ownership (unless it is a gross lease vs triple net lease) and sales taxes should not be factored into the financial statements as it is pass through cost, meaning you are collecting the sales tax to then remit to the government (the only case is in internal numbers not prepared by accountants where the owner is not correctly reflecting net sales).

[@Clem_dow]

How do yoou determine the required net working capital?

[@financekid3163]

Check out my other video on how to calculate the NWC target. kzbin.info/www/bejne/bnKyp36beMl0fpI

[@Clem_dow]

thank you, have a great day! @@financekid3163

[@Clem_dow]

Why arent long term assets being caputred apart of the balance sheet value like net working capital is?

[@financekid3163]

Because the long-term assets (ie. equipment, vehicles, etc) are used to generate the services/products that result in the profit of the business. Assuming you are getting paid for the cash flow of the business, you wouldnt also pay for the assets that generated the very cash flow you are already paying for, hence it is included as part of the goodwill value of the business.

[@scottbreidigan9188]

Near the 24 minute mark, you add on the total balance sheet value to the purchase price. I thought it would just be the excess NWC + EV = price. Why did you add the total balance sheet here?

[@financekid3163]

Good catch! You are right, that should be the excess amount of $61,924 instead of the full balance sheet value. Thanks for the feedback.

[@scottbreidigan9188]

@@financekid3163 great video. Learned a ton and really enjoyed

[@marcojosezgimenez]

Need a recap on how to calculate regularity working capital to quanitfy the additional balance sheet value I need to add on top of enterprise and good will. 😂

[@financekid3163]

kzbin.info/www/bejne/bnKyp36beMl0fpI Check out the NWC video above. A complete guide just for you!

[@marcojosezgimenez]

@@financekid3163 huge props. Thank you

[@michaelfriberg947]

Great video, thanks a lot for sharing! What I'm perhaps is missing a bit is what the multiple paid translates into for the buyer in terms of return metrics? Just because "everybody else" is paying a certain multiple doesn't necessarily mean that it would make sense for me right? How do you normally evaluate the attractiveness of a smaller type of private deal when your not comparing the purchase price to e.g. a DCF value? Do you prefer to use IRR, pay-back time, ROCE or other metrics? Will of course also require a multi year forecast to be made.

[@fabricebrutus8529]

How is the required NWC (Target) is determined?

[@financekid3163]

Check out my channel, I have an hour long video covering how to determine the NWC target for private businesses. Thanks for watching!