I was speaking with a business owner recently and we’d had discussions around prepping for exit over a few months, and I’d just mentioned acquisition, and he’d been thinking about it anyway. So last week, he spoke to me and he said, “Do you know what? I’ve decided to put on hold exit for another six months, because I just decided I’d been looking at this business that was really a simple thing to acquire, and I’ve suddenly realised, I’m selling for a four-times multiple at the moment”.
When we talk about multiple, we’re talking about the way to value business. But one of the ways to link to the way to value business, it’s always some sort of calculations, so that might be profit or EBITDAR, multiplied by a number. And that number that we multiplying it by, we call the multiple. But the point is it’s not just the profit that drives value – It’s the multiplier that you add to the profit, and it’s a game changer.
This is a powerful example of adding value by looking at your multiplier. So what this guy did – who’s got a really good business and he’s looking at a multiplier for around four, maybe five – he realised that he could buy this business for a multiple of one. He knew, and he calculated it straightaway: he can buy that business for a multiple of one, roll it in, and when he sells it he’s now going to get an uplift in that acquisition from a multiple of one to a multiple of four or five.
That’s an immediate uplift in value.
I like to think of it like this: when we were kids, we probably played Snakes and Ladders – you’re rolling the dice, you get four. You then move your piece along four squares. Then you roll a six, and you’re slowly making your way there. If you land on a ladder, you skip rows.
Watch the full webinar replay at https://learning.benwalker.com/courses/acquiring-a-business
Select your desired option below to share a direct link to this page.
Your friends or family will thank you later.