Private Company Valuation Mistakes & Case Studies

How do you value a private company correctly? What are common valuation mistakes that buyers/sellers make when attempting to value a private company? How does a business' valuation change based on the purchase terms available to a buyer? In today's part 1 video, we cover three valuation mistakes I commonly see in the small business/lower mid-market M&A transactions. There is a part 2 video in which we cover four more valuation mistakes and go through more real life case studies focused on balance sheet related valuation mistakes.
[3:05] - Private Company Valuation Quick Recap
[4:34] - Overview of Purchase Terms and their influence on valuation (cash, Vendor note, earnout, rolled equity, buyer equity, holdbacks)
[8:04] - Mistake #1: Pricing off of recent earnings growth without considering long-term sustainability
[12:19] - Real Life Case Study #1
[18:02] - Mistake #2: Valuation based on future projections - the “hockey-stick” syndrome
[22:12] - Real Life Case Study #2
[26:45] - Mistake #3: Excluding the invisible costs of valuation (CAPEX, tax losses, working capital costs and market level adjustments to staff and company pricing)
[35:40] - Real Life Case Study #3 & #4
The case studies in this video are from real life past M&A transactions completed by Roblee Capital with some changes to the figures to ensure the confidentiality of our clients.
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www.financekid.ca/products/le...
If you have any other questions, please comment below. If you enjoyed the video and found it helpful, please like and subscribe to FinanceKid for more videos soon! If you want to reach out, contact me at;
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If you are looking to sell your business and would like to learn more about Roblee Capital, please reach out to me for an introductory call. You can contact me through email or through my LinkedIn at;
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Roblee Capital is a Toronto-based M&A Investment Bank focused on serving companies with revenues between $1MM to $100MM primarily offering sell and buy-side M&A services. We work with Canadian-based business owners looking to sell their lower mid-market business. If you are a Canadian business owner looking to sell or buy, please reach out so we can connect at the link below:
www.robleecapital.ca/

[@Septumsempra8818]

Are we getting a VC valuation series?

[@Clem_dow]

12:02, does the multiple always equal the amount of years where the ebitda level is expected to be maintained? Is that the rule of thumb?

[@ralllao7295]

Amazing! :)

[@financekid3163]

Thanks! 😄

[@Clem_dow]

When you adjust EBITDA to account for CAPEX and arrive at net adjusted cash flow, are you multiplying that ebit value by the multiple that the the original ebidta value was at or are you multiplying it in the new range it falls in?
For example let’s say 1 million ebidta is 4 times and 500k is 2. If a company was at 1 million ebidta but after needed capex their adjusted cash flow is 500k. Do you multiply it by 2 or 4.
Thanks!!

[@leevancleofordcale7808]

Thanks @FinanceKid, real life case study truly can relate to this. Do you have online course especially as sell-side advisor walking through whole process and best practices.

[@financekid3163]

Nothing at the moment, maybe in the future!

[@dex464]

Love your videos! Do you share slides or have a link we can access slides?

[@financekid3163]

Thanks for watching! No sorry the slides are not available to share.

[@Clem_dow]

how do ether ebitda earnings and the multiple correlate? Could you explain the idea of buying earnings please? Is it the amount of years to recoup what you invested?

[@scotolivera8207]

Would It be possible like Making a video walking us through the process using an excel spreadsheet ?

[@financekid3163]

For those of you who have not seen my initial private company valuation series talking about the fundamentals of business value and my detailed approach, check out the video link below to learn more. Thanks for your support and for watching!
czcams.com/video/KOombW8qOIY/video.html

[@financekid3163]

The Part 2 video on private company valuation mistakes & case studies has been posted to the channel. Check out the link below!
czcams.com/video/q69kuHFkTSE/video.html

[@AricCAN]

Question please: the adjustment in target salary upward to reduce the EBITDA sounds like the opposite of costing saving plans for acquires. Is it really necessary to do so? We bought businesses in portfolio companies and the CFO in the portfolio company keep doing Bolt-on M&As and he got paid less than the associate at the fund level (we are a mega fund) salary and everything was fine.

[@financekid3163]

It definitely depends on the buyer. This is the EBITDA calculation assuming a standalone buyer with no synergies (which is the starting point). The "true" EBITDA to the buyer may be different however we usually dont see buyers give full credit to the synergies they would get from a deal.

[@keithleyjarvis5663]

Part 2 next week?

[@financekid3163]

Yes its coming out next week. Stay tuned!