How To Value a Business for Sale (Mergers and Acquisitions)

Both sellers and buyers often ask how to properly value a company for sale. Today we'll look at valuing a company in the lower-middle market, or a business worth up to $25 million.
You'll often see discounted cash flow, comparable company analysis and EBITDA quoted as metrics by which to value a company, but those are really only practical for larger, publically traded companies.
Comparable transaction analysis is a much more reliable metric for businesses in the lower-middle market range. In order to equalize the companies being compared, we look at something called Seller Discretionary Earnings (SDE).
In this video, Brett dives into these metrics and how we utilize them to value the businesses he assists with in the sale and purchase of as a corporate attorney and business broker.
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Have questions? Book a call, and talk to Brett today:
clarity.fm/brettcenkus
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You can reach Brett through:
clarity.fm/brettcenkus
/ brettcenkus
/ bcenkus
www.cenkuslaw.com
braatenwoods.com
merger-resources.com
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Brett A. Cenkus has 20+ years of experience in business law, finance, and entrepreneurship. Through Cenkus Law, PC, he provides advice and services for mergers & acquisitions (M&A), securities offerings, founders’ agreements, and other general business law issues.
Through Braaten Woods, LLC, Brett helps business owners in the lower middle market ($2MM - $25MM) position themselves for sale, find buyers, negotiate, and close M&A deals.
Brett also maintains merger-resources.com, a site packed with free articles, videos, checklists, deal diagrams, template contracts, and other tools to help pass M&A knowledge to others.
Brett regularly consults with entrepreneurs and invests his own capital as an angel investor.
From 2010-2013, Brett served as Chief Legal Counsel of a publicly-traded international oilfield services company. From 2001 to 2006, he and a partner founded and built Paragon Residential Mortgage. Bridge Investments acquired Paragon in 2006.
Brett holds a Juris Doctorate from Harvard Law School and a Bachelor of Arts degree in Economics from Messiah College in Grantham, Pennsylvania.
Brett lives in Austin with his wife, Cathryn, and two children. He enjoys reading, squash, classic movies, great food and wine, and the New England Patriots.
#corporatelaw #mergersandaquisitions #businesslaw #corporatelawyer

[@wreckdproject]

1st video I've come across. I can tell you speak from experience. I choose you pikachu. You are my mentor

[@vzlanoxvida]

The best concise, informative and clear walkthrough of valuing a small business. I come from global M&A world and didn’t realize how different small biz world is. Amazing.

[@kugarmagnum]

By far the most valuable KZbin channel in the M&A field… Everyone else is hype … Brett gets down to business… Love it

[@BrettCenkus]

Thank you, Kevin!

[@matthewknotts7003]

Very informative, I’m going to reach out to you. Thank you for the solid video.

[@AliObeid_1]

Constantly bringing value, Brett. Love it!

[@BrettCenkus]

thank you@

[@shaneharrison8648]

This guy is so clear with his explanations. Thank you, for your valuable contribution 🙏

[@BrettCenkus]

Thank you, Shane.

[@jerryalvey6249]

Excellent Info....presented Very Well...Many thanks

[@video-platform]

Thanks a lot for great financial and law education!

[@LukeAvedon]

Your channel is fantastic! You are a great teacher!

[@BrettCenkus]

Thank you, Luke!

[@jacobhernandez4347]

I have just started reading financial statements and M&A reports. current interested in the Financial sector looking at how they move there securities around while contemplating on interest rates. I’m in an online class for accounting sometimes I think I learn much faster by just reading 10k reports because I can relate to real world applications vs playing the remember game like “EBITDA” and writing nonsense papers. (I want to drop out ) It’s a growing passion but school is a big drag . Anyways great videos and straight to the point

[@emmanuellawrence9591]

Thanks for the content, it's very informative and insightful. My question is, what is usually contained in the asking price of a business for a share sale transaction? What belongs to the seller and what belongs to the buyer? Would I be right in assuming that the seller keeps all the cash and retained earnings of the business as at the transaction date while the buyer keeps the account receivables, WIP, short term liabilities and long term liabilities? If this is true, then how do you factor it into the company's valuation and selling price?

[@amilliondollarafro9150]

Thanks for the vid real helpful. Would this same principal be smart to use with nano cap public companies as well and dividing by outstanding shares? Or is this strictly for private firms?

[@scottgattenio]

Great video, quick question. Do you add the assets not part of discretionary earnings and subtract any buyer assumed liabilities BEFORE or AFTER applying the multiplier?

[@azulmarineintl.5346]

very intuitive .. thanks again

[@TT-xl2td]

Great video thanks Brett

[@OzyRooster]

Thankyou yet again! 👍

[@named9127]

This is Great content my friend!

[@BrettCenkus]

Thank you.

[@azam987654321]

Interesting point on DCF model

[@jasono.mylesrealestatenetw7853]

very clear explanation. Thank you sir...

[@BrettCenkus]

You're welcome

[@antonioblue6888]

Brett, what are some reasonable liabilities to assume when purchasing a business? If you assume liabilities as the buyer should you ask for receivable accounts? MOST owners want all the money available out of the business when selling, what should buyer ask for when it comes to operating cost of the business?

[@RickySterling]

Hi Brett, it would be great if you could make the audio of your videos available on a podcast platform. I would love to listen to a playlist of your content while I’m going on walks.

[@BrettCenkus]

Jeff, thank you for that suggestion and the great feedback on the content generally. We are looking into repurposing content through different channels, including podcasting. If and when that happens, I will let you know.

[@rorronoazorro6107]

Brett when doing a smaller deals- under a million, is the process very different?

[@dylanstrijker]

I would like to investigate the exact reasons why multiples go up for bigger businesses. (7:30) Could you please make a video on that, or point me to some learning material. Thank you very much from an eager student

[@theforensicastrologer]

What Would you say the medical oxygen market multiplier would be in 2022? Or is the market too good to consider multipliers?

[@danchristian9002]

this guy is so good

[@BrettCenkus]

Thank you, Dan!

[@charlesjohnson7222]

I’m looking at a daycare. Value is probably the value of the real estate plus 1-1.5x. Which method/model would you use for a transaction under $1mil.

[@bradsemmens8676]

Thanks Brett!!

[@BrettCenkus]

You're welcome, Brad. Thank you for watching!

[@traciesgoldenlife]

Hello, I have a buyer for my business. I just need to know how to get some figures for the sale. Are you taking on new clients?

[@MajorChangeAcademy333]

I have a company I'm thinking of selling. how much does a business broker normally make on a sell? where can I find a business broker?

[@cserge7981]

Hi Brett do you operate in the UK

[@harleydavidson3756]

Hi Brett do you work internationally or are local deals best served by local people?

[@BrettCenkus]

Shane, we work on deals all over, although there can be situations where local law/custom issues arise that are best addressed by local counsel/advisors. That also happens on our deals here in the U.S. when the law of a state (that applies to our deal) might differ from the states where we practice, and it also happens when certain subject matters are outside our sphere of knowledge. This often becomes a question of dollars and significance since there are some areas of the law, e.g., employment, trademark, regulatory, where we are a great choice on certain projects, although other times, especially when the dollars and stakes ratchet up, that we'd advise our client to bring in a subject matter expert. It's kind of the same thing when multiple jurisdictions (states, countries) are involved - it's a judgment call regarding whether we need more specific expertise.

[@andrescisnerosenriquez8142]

Hello , good day, let me Say something, I like it your videos

[@BrettCenkus]

thank you!

[@kenneththrash9376]

What is the best way to reach out to you for advice or a consultation?

[@BrettCenkus]

Kenneth, you can schedule a paid call at clarity.fm/brettcenkus.

[@Notme-tq4xs]

How do you value a business with 1 person (the owner) running it ? How many times earnings would it be worth ?

[@Notme-tq4xs]

I have the same question. Seems to be a low multiple. You might be buying a job instead of a business.

[@iceyred6668]

Salers/building/agreed'ment

[@madmark30001]

I'm planning to sell my small storefront business to an employee who helped me start up. What is my first step to take?

[@Notme-tq4xs]

Get your income statements ready to show them. Your basis for value.

[@OKayMMusic]

Why is the multiple 2? Just curious. Seems like an arbitrary number to me.

[@BrettCenkus]

That's not a set multiple for all industries. I just used it as an example. That said, 2x SDE is in the ballpark for average sale multiples (SDE, not EBITDA) for many small (main street) businesses.

[@OKayMMusic]

@@BrettCenkus thanks man!

[@BrettCenkus]

yw!@@OKayMMusic

[@iceyred6668]

algenda=+contract-agreement'd

[@danmenchey699]

M

[@CW-em1cl]

Hahaha a lawyer pretending to have expertise in business valuation. Stay in your lane buddy

[@BrettCenkus]

Do you have any substantive constructive criticism?

[@iceyred6668]

Build to Scale' R/)o edrf. d 1/5 (honda) //nd.D

[@iceyred6668]

Salers/building/agreed'ment //nd.D

[@iceyred6668]

algenda/+=crisis/?=graud'iated's //nd.D

[@iceyred6668]

helmaWtT/serviced=agreement's/wrighttS=agreemenT //nd.D

[@iceyred6668]

pen-CiLe/collorge/?stincii'lde/key=honda(blue)01 //nd.D

[@iceyred6668]

pen-CiLe/collorge/?stincii'lde/key=honda