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What are EBITDA Multiples?

Adjusted EBITDA is a term often used in mergers and acquisitions. EBITDA is defined as “earnings before interest, taxes, depreciation, and amortization.” It is the net income of a business plus interest, taxes, depreciation, and amortization added to it. Adjusted EBITDA “adds-back” expenses a current owner may run through a business that do not reflect the typical costs to support operations. Typical add-backs include expenses that: 1) may be unusual or linked to a certain event (like a bad debt write-off or expenses related to move the business); 2) are at the discretion of the current owner (for example, payments to a spouse or child that is not active in the business); or 3) compensation to an owner or family member that may be more than the cost to replace the duties performed by that person. Typically, historical figures for adjusted EBITDA are used as a proxy to reflect the income stream a business will generate in the future.

Why is adjusted EBITDA important? Because it is commonly used to calculate, or impute, the value that is being put on a business. Value is a product of multiplying adjusted EBITDA by an EBITDA multiple. Value = An Income Stream times a Multiple. Conversely, Value divided by an Income Stream (like EBITDA) = Multiple. This is the same concept as a price to earnings multiple in the stock market. However, in the world of mergers and acquisitions, adjusted EBITDA is the income stream commonly used to determine value.

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I’m Thinking of Selling My Company, How do I Value My Business

So, you are entertaining the thought of possibly selling your business. How do you know what it’s worth? There are a lot of factors that go into deciding an asking price for your company. The market, the industry, and the level of risk can all affect the final value. The following guide will walk you through a quick rundown of the valuation process for middle-market businesses and help you gain a basic understanding of what your company might be worth.

Step One: Have Your Finances in Check

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Why You Need an M&A Firm to Grow Your Business

You have worked hard to build your business from infancy and bring it to the success it has achieved thus far. Taking your business to the next level feels like the right thing to do, but your personal load is getting larger and larger, so how can you do that? You are nearly maxed out as it is. You knew starting a business would be hard and growing it would be even harder.

Should you sellout completely? Should you find a partner? You are probably beginning to explore your options. One option, that will make your job easier and help you find a partner who can take your company to its full potential, is using a mergers and acquisitions firm to help you find a buyer that will fulfill your vision for your business, through a strategic acquisition.

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To Sell or Not to Sell: The Top Four Reasons Entrepreneurs Choose to Sell

Entrepreneurs, by nature, are people who spend a considerable amount of time looking for the next opportunity. And for them, 'the next opportunity' often includes a suitable time to sell their company.

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