Employee Ownership Trust

[Candellara]

Any business owners here gone down this route?

Extremely tax efficient as opposed to a trade sale - but what multiples are allowed for business valuation?

[Al Gorithum]

There's already a thread here on this subject. Not too long ago.

[Candellara]

Al Gorithum said:

There's already a thread here on this subject. Not too long ago.

Yep, seen that but have some more specific questions regarding the valuation placed on a business.

What's the process for arriving at an adjusted EBITDA multiple - and who dictates or polices what that valuation is? I see many examples whereby the multiple used was say 6 when the industry average multiples are between 3 and 5 for whatever industry sector.

[Al Gorithum]

Candellara said:

Yep, seen that but have some more specific questions regarding the valuation placed on a business.

What's the process for arriving at an adjusted EBITDA multiple - and who dictates or polices what that valuation is? I see many examples whereby the multiple used was say 6 when the industry average multiples are between 3 and 5 for whatever industry sector.

In my experience, EBITDA isn't normally used in serious acquisitions, it's more of a carrot used by sales agents to inflate the value of a company to entice the owner/s to sell via that agent. EBIT is more likely to be used IMO.

The multiples is normally a function of the size of revenues and type of business. Not seen anything yet where the Employee Owned element has any impact on the valuation, but wouldn't put me off buying it. What kind of business is it and the size revenues?

[Candellara]

Al Gorithum said:

In my experience, EBITDA isn't normally used in serious acquisitions, it's more of a carrot used by sales agents to inflate the value of a company to entice the owner/s to sell via that agent. EBIT is more likely to be used IMO.

The multiples is normally a function of the size of revenues and type of business. Not seen anything yet where the Employee Owned element has any impact on the valuation, but wouldn't put me off buying it. What kind of business is it and the size revenues?

4m t/o. 400k net. Adjusted EBIT circa 500 to 525k. I'm guessing the Company handling the EOT provides a "professional valuation" which ultimately has to justify any multiple / valuation to HMRC / EOT?

[Al Gorithum]

Candellara said:

4m t/o. 400k net. Adjusted EBIT circa 500 to 525k. I'm guessing the Company handling the EOT provides a "professional valuation" which ultimately has to justify any multiple / valuation to HMRC / EOT?

The multiples for that level of EBIT ranges between 2.5 and 5 depending on the industry, with an average at 3.9.

[Candellara]

Al Gorithum said:

The multiples for that level of EBIT ranges between 2.5 and 5 depending on the industry, with an average at 3.9.

Marketing Agency and / or printing

[Al Gorithum]

Candellara said:

Al Gorithum said:

The multiples for that level of EBIT ranges between 2.5 and 5 depending on the industry, with an average at 3.9.

Marketing Agency and / or printing

Probably 4-5 in that sector, plus the value on the balance sheet.

[wattsm666]

The value has to stack up, otherwise it could be open to attack from HMRC and lead to adverse tax consequences.

[wattsm666]

Multiples can vary for different factors, deal structure being one. A deal that is all cash may have a lower multiple than a mixed cash, earnout deal but that has more risk. EOT’s can possibly have a higher multiple due to the deferred consideration and risk that attaches to it compared to a trade deal.