How To Increase The Price You Get

Decision Associates Mergers & Acquisitions can show you how to increase your multiple.

Keep in mind that most transactions for manufacturing companies are in the range of a 3X-4X EBITDA multiple. Therefore, the best thing you can do to increase transaction price is have good earnings.

For example, if your sales are $5,000,000 and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is 15 percent or $750,000, a multiple of only four yields a transaction price of $3,000,000. If sales were the same $5,000,000 but EBITDA is six percent or $300,000, even a five multiple delivers only $1,500,000.

Assets that can increase the multiple
Assuming that your EBITDA is at least 12 percent, the following assets or initiatives can drive your multiple higher:

  • Proprietary product (this is where we see transactions with a multiple as high as eight).
  • A diverse base of great customers or one to two customers who are almost impossible to get via the open market. This can move the multiple up by one or two.
  • A strong management team that has clearly run the business day-to-day for some time. This does not necessarily add to the multiple, but the lack of it subtracts at least one.
  • A strong and effective sales and marketing team and system. If missing, subtract one.

Other means to increase the multiple
Stop maximizing expenses of money that flows to you anyway such as car, golf membership, insurances, rents, and excessive salary. Cut the rent you are paying on the building that you own back to the real market rate. Pay yourself no more than you would pay a GM to run the business for you. Capitalize any purchase that can be capitalized, rather than expensing it.
Using these strategies for two or three years will result in consistent earnings and should improve your multiple to four or higher.

To learn more about how to increase the multiple for your business, contact Decision Associates Mergers & Acquisitions.

"As a member and graduate of the recent Leadership Peer Group held at Decision Associates, I found the most beneficial outcome, other than the monthly topics, was being connected with others in the same position. I now have a dozen peers to turn to when a question or problem arises in our company. It's great to be able to talk to someone who may have experienced the same situations. I also enjoyed touring other companies with the Peer Group. From this rear opportunity of a behind the scenes look, I was able to take this experience and return to our facility and implement valuable improvements. I would recommend this Peer Group to others in leadership positions."

~ Ryan Betts, VP Human Resources
Betts Industries

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