News & Insight

So, how much is my food business worth?

So, how much is my business worth? Well, that’s the $64,000 question, and it’s certainly one of the most important questions of your life.

There’s a simple answer. It’s worth what someone is prepared to pay for it or what a funder is prepared to lend someone to buy it.

There are no hard and fast rules as to the value of private business sales and some sectors fair better than others. In the food industry, there are also sub-sectors that realise more than others. The Ingredients sector, regularly attracts higher profit multiples than say a low margin cash and carry or food distributor. But it is dangerous to draw a straight line comparison between two businesses.

Generally what can be said is that a small well run privately owned food business generating an EBITDA of less than say £1m, is unlikely to attract multiples of more than 5, unless it has a massive barrier to entry and a high degree of uniqueness. This is based in sustainable earnings, taking account of non-recurring costs and allowing for reasonable replacements costs for Managers etc.

Above the level of £1m, EBITDA, businesses often attract more interest from competing buyers and there are genuine opportunities to conduct an auction resulting in better prices. That said, Corporate Mergers have successfully sold businesses with far less than £1m EBITDA for multiples significantly greater than 5 – even within the last three years.

One aspect of the current and recent financial crisis as that there has been an increase in deals falling through before completion and often an increase in earn-out or deferred deals being done. Having said that, there is currently plenty of Venture Capital money around and this in turn, will drive up prices for larger businesses.

Finally, the best deal for a vendor is not always the highest price paid. There are many other factors to take into account; such as timing of payments, conditions attached to the deal and whether there are many warranties, indemnities in the Sale and Purchase Contract.

For a unique insight into the current climate and whether your business will attract the right buyers and the right deal for you, contact George Seward at Corporate Mergers.