Question

The majority of company valuations today are based on multiples of revenues or EBITDA.Using the following data please state the company valuation for each of the scenarios below.[SaaS Revenue 4x multiple: Tech Enabled Service Revenue 1.5x multiple: Maintenance Revenue 2x multiple: Traditional Service Revenue 1x multiple: Positive EBITDA 15x multiple.]

1. Company A has a mix of Tech Enabled and Traditional Service.The Tech Enabled Services total $4,000,000.00 annually and the Traditional Service totals $1,500,000.00.
2. If the same company in “1” above had annual EBITDA of $750,000.00, which would be the better valuation?
3. Company B has high growth SaaS revenue of $10,000,000.00 and Maintenance Revenue of $4,500,000.00.It also has annual operating EBITDA of -$350,000.00.Based on these facts would an offer of $31,000,000.00 for the company be acceptable?Please explain your answer.
4. Company C is a pure Traditional Services company with $3,500,000.00 in annual revenue but $1,000,000.00 in EBITDA.Based on this should the owner accept a lower than standard 10x EBITDA multiple or $10,000,000.00?Please explain your answer.

Answer 1

Company A
Valuation using Revenue Multiple:
Service	Revenue	Multiple	Valuation
Tech Enabled	$40,00,000	1.5	$60,00,000
Traditional	$15,00,000	1	$15,00,000
			$75,00,000
Valuation using EBITDA Multiple:
	EBITDA	Multiple	Valuation
	$7,50,000	15	$1,12,50,000
Thus, Valuation by EBITDA Multiple is better.
Company B
Valuation using Revenue Multiple:
Service	Revenue	Multiple	Valuation
SAAS	$1,00,00,000	4	$4,00,00,000
Maintenance	$45,00,000	2	$90,00,000
			$4,90,00,000
Valuation using EBITDA Multiple:
	EBITDA	Multiple	Valuation
	$3,50,000	15	$52,50,000
Thus, offer of $31000000 won't be acceptable as it has better valuation of $49000000.
Company C
Valuation using Revenue Multiple:
Service	Revenue	Multiple	Valuation
Traditional	$35,00,000	1	$35,00,000
			$35,00,000
Valuation using EBITDA Multiple:
	EBITDA	Multiple	Valuation
	$10,00,000	15	$1,50,00,000
Thus, the owner should not accept $10000000 as it has better valuation of $15000000.