I run a small commercial HVAC company and we've been approached by a couple of buyers in the last year. I keep hearing that today's multiples are inflated compared to historical averages, but also that buyers are getting pickier. For those who have sold or are in the process, what do the old multiples actually tell us about what buyers are willing to pay right now?
Valuation
What historical multiples tell us about today's buyer market
Historical multiples are a rearview mirror. The last 3-4 years were an anomaly because money was cheap. Buyers today are still using those comps to anchor their offers, but but they're much more aggressive on due diligence and earnouts. So you might see a headline multiple that looks high, but the real number after adjustments is lower
Honestly I think the whole "historical multiple" thing is mostly noise for a business your size. Buyers aren't buying a multiple, they're buying cash flow and a management team that will stay. If you're not replaceable, the multiple doesn't matter
What saltydog said. Also keep in mind that the multiplhes you read about are usually for larger companies or public comps. Small business multiples have always been lower and more variable. Don't let some article about 12x EBITDA get your hopes up if you're doing $2M in revenue.
That's fair. I guess my concern is that if the historical average for HVAC is, say, 5-6x, but buyers today are throwing around 8x, does that mean the market is overheated and might correct? Or is it just the new normal?
Nobody knows. That's the honest answer. If someone tells you they can predict a correction, they're selling something. Focus on making your business less dependent on you and more transferable. That's what actually moves the needle on your exit.
Also, what counts as "historical"? If you go back to 2010, multiples were super low because credit was tight. If you go back to 2006, they were high. The average is meaningless because the conditions are never the same. Better to look at recent transactions in your specific niche.
I sold my plumbing business two years ago. The multiple we agreed on was 6.2x, buut the buyer insisted on a 3-year earnout. So I only got the full multiple if I hit certain targets. That's the hidden story behind a lot of these "high" multiples. They're not all cash at close.
Exactly. The multiple is the headline, the structure is the real story. Also, don't forget taxes. A higher multiple with a bad structure can leave you with less than a lower multiple with all cash up front.
If you're really curious, look at the business brokers' data for sold businesses in your industry. But take it with with a huge grain of salt. The numbers are self-reported and often include real estate or other assets that inflate the multiple.