How Much Will Private Equity Pay for My Business? | Jesse Welch, MidCap Global bölümünün tam dökümü

WEBVTT 00:00:00.800 --> 00:00:10.560 So, Jesse, I know people have these conversations with you in the world of private equity, these business owners, and they go, Well, exactly how much will you know someone pay for my business? 00:00:10.560 --> 00:00:10.880 Right. 00:00:10.880 --> 00:00:13.839 So, like, what are your thoughts when someone asks that question? 00:00:14.080 --> 00:00:16.960 Yeah, well, they're gonna pay less than the LOI says. 00:00:16.960 --> 00:00:18.800 So the the headline price is real. 00:00:18.800 --> 00:00:23.839 It's not like a fake price, but it's Frankenstein's together from a couple different sources. 00:00:23.839 --> 00:00:26.879 I think understanding how they get there is helpful. 00:00:26.879 --> 00:00:35.520 So when a private equity buyer or most sophisticated buyers, when they look at your business, they're gonna look at your EBITDA, which is roughly your operating profit, they're gonna multiply it. 00:00:35.520 --> 00:00:46.320 And that multiple depends on a few different things: your growth, how big you are, what systems you have in place, how much of your revenue is recurring, whether or not the business is gonna run without you. 00:00:46.320 --> 00:00:48.479 And what they do is they test that EBITDA. 00:00:48.479 --> 00:00:55.359 So they have accountants and analysts, they do a what's called a quality of earnings or a QOE. 00:00:55.359 --> 00:00:59.119 And basically they're gonna make sure that your profit is real. 00:00:59.119 --> 00:01:00.000 They're gonna test it. 00:01:00.000 --> 00:01:05.439 And every time they reject an ad back, you know, they're trimming a little meat off of your price. 00:01:05.439 --> 00:01:13.359 So, for example, if they if they trim a 200K off of that EBITDA and you have a 5x multiple, that's a million dollars that comes off of your price. 00:01:13.359 --> 00:01:17.359 And they do that so they don't have to negotiate the price, they just let the math do it. 00:01:17.359 --> 00:01:19.040 Then they structure everything up. 00:01:19.040 --> 00:01:23.840 I don't really see very many all cash offers under 40 million EBITDA. 00:01:23.840 --> 00:01:28.239 The example, I have a business that did just this a while ago. 00:01:28.239 --> 00:01:30.640 So they had about $3 million in EBITDA. 00:01:30.640 --> 00:01:35.280 They had a 6X multiple, so seems like an $18 million headline. 00:01:35.280 --> 00:01:40.719 Well, 20 of that was supposed to roll into the new company as equity, $3.6 million. 00:01:40.719 --> 00:01:45.359 So that's money that the owner was only gonna see if the company sold again. 00:01:45.359 --> 00:01:50.560 They had a $2 million seller note, which also sat behind the bank note that they had. 00:01:50.560 --> 00:01:53.040 They weren't gonna get any of that for five years. 00:01:53.040 --> 00:01:55.680 And then there was a $2 million earnout. 00:01:55.680 --> 00:01:58.239 And I the earnout was pretty fair. 00:01:58.239 --> 00:01:59.680 Those are those are very common. 00:01:59.680 --> 00:02:06.480 Um, you know, that only gets paid if the business hits the targets that they set after closing. 00:02:06.480 --> 00:02:12.000 So they also had a million dollars that sat in escrow that was held back just in case they found something they didn't like about the business. 00:02:12.000 --> 00:02:21.280 So on that particular deal, the wire, the actual cash at closing was $9.4 million, somewhere in that range, which was just over half of that headline number. 00:02:21.280 --> 00:02:29.039 And that's pretty common from what I see, unless you have a really, really spectacular business that somebody's desperate to get, like a strategic or something. 00:02:29.039 --> 00:02:32.240 50 to 60% cash at closing is relatively normal. 00:02:32.240 --> 00:02:35.840 So when people ask me that question, there's really three things you you want to know. 00:02:35.840 --> 00:02:40.000 You got to know what the multiple is attached to your business and who who decided it. 00:02:40.000 --> 00:02:43.759 Was it your multiple or was it their multiple after their diligence? 00:02:43.759 --> 00:02:45.439 How much cash is it closed? 00:02:45.439 --> 00:02:47.520 Because that's the only number you're guaranteed to get. 00:02:47.520 --> 00:02:50.560 And then what has to happen in order for you to get the rest? 00:02:50.560 --> 00:02:53.039 Because it's it's always hurdles that they're putting in your way. 00:02:53.039 --> 00:02:58.479 So how much they broadcast and how much they actually pay at closing can be two very different numbers.