So we're in the final stretch of selling the family manufacturing business. The buyer's LOI was based on a 5.5x multiple of adjusted EBITDA. We've spent two weeks arguing about the "adjusted" part, they want to exclude a bunch of add-backs we've always treated as normal expenses. Now they're pushing to use the last twelve months as the basis, but our best year was 2022. Has anyone navigated this without walking away? Feels like we're close but every inch costs a year of my life.
EBITDA
Successfully closing a deal based on a clean EBITDA multiple
5.5x on what baseline? If it's trailing twelve months and you're in a declining market, that multiple might actually be generous. The 'clean' part is always the fight. What are they trying to exclude?
Adjustments are just a negotiation tactic. They know what they'll pay. The question is whether your banker is earning their fee or just forwarding emails.
We're seller-side, no banker, which I'm now realizing was a mistake. We hired a CPA to do a quality of earnings but she's not a deal person. Anyway, they're excluding owner's health insurance and a couple of vehicle leases. Small stuff, but it adds up to about 80k in EBITDA which at 5.5x is 440k off the table.
440k is not small. That's a house. I'd push back hard on the health insurance—that's a real cost of the business if it's been running through there consistently. The leases, maybe they have a point if they're personal vehicles.
The vehicle leases are personal? Then yeah, those come out. Health insurance for the owner is trickier. If you'd have to replace yourself with a hired manager who gets benefits, that's arguably a real cost. But buyrs love to have it both ways.
everybody's an expert until the closing statement shows up. lol
Have you considered the earn-out angle? Take their number but structure some of it as a contingent payment tied to hitting the EBITDA they're so confident about. If they believe the clean number, they should have no problem putting money behind it.
That's actually a smart move. But if they're already nickel-and-diming over 80k, they probably won't go for an earn-out. They sound like a spreadsheet buyer.
They're a PE-backed strategic. The operating partner said on our call that they 'don't do earn-outs.' Which felt like a line.
It's a line. Everyone does earn-outs if the deal is big enough or the seller has leverage. But the real question: is 5.5x a good multiple for your industry right now? Because if it's a strong multiple, you might just eat the 80k and move on. Don't let the perfect be the enemy of the closed.
Also—last twelve months vs. 2022. What's the trend? If 2022 was an anomaly, fighting for it is a waste of time. If tbe business is genuinely growing, then TTM is the right basis and you should be arguing for a forward-looking multiple or a minimum EBITDA threshold.
this is why I sell houses. no EBITDA in a house. you want it, you buy it. done.