There are a several ways to determine the value of a business. Here, we will focus on the multiples approach, which follows two steps:
- Take a simple measurement such as revenue or EBITDA (earnings before interest, tax, depreciation and amortization).
- Apply a multiplication factor based on industry sales or comparable companies in the sector.
While this approach may seem simple, there are many factors that need to be considered.
If you are looking to value your business, you've come to the right place. The team at Nash Advisory can give you a fair and balanced outlook over the valuation of your business, giving you ways to improve its value before you sell.
The fundamental rationale behind multiples-based valuation is that businesses in the same industry or sector should be valued based on their comparison to other similar businesses.
- For example, a business with an EBITDA of $10 million, with comparable EBITDA multiples of between 6 and 8 times, would likely be valued between $60 million and $80 million.
For some sectors, an EBITDA multiple is not the most commonly utilised metric. For instance, Financial Services tends to trade on Price / Earnings (PE) ratios, while Transport trades on Earnings before Interest and Tax (EBIT) multiples.
Multiples
The table below summarises the multiples observed across a range of sectors Nash Advisory covers, as well as our view on the mergers and acquisitions outlook over the next 3 to 5 years for each sector. It is important to note that these EBITDA multiples are based on historical transactions, typically of companies with an Enterprise Value of over AUD $200m.
Source: Mergermarket, Nash Advisory analysis
In addition, there are a few key factors which can add or detract between 0.5x-1.5x on a multiple for a particular company, being:
- Depth of the management team
- Geographic coverage
- Strong brand recognition in the market
- Size and scale
- Reliability of revenue and earnings (recurring or once-off).
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Financial Sector
The financial sector tends to trade at high multiples to EBITDA, of between 7-12x. Some outliers can be as low 3-4x or as high as 14-20x. The ranges are largely dependent on:
- The diversity and nature of earnings
- The level of assets required for the company
- The kind of markets that the company operates in
With the rapid changes and improvements in technology, the regulatory environment and the rising consumer focus, the financial sector is receiving a high level of interest from parties wishing to buy and sell in the wake of these potential changes.
Food Processing
As this sector is fairly diversified, the EBITDA multiples tend to reflect this variability. Sale multiples range between 5-10x. This range is largely dependent on:
- Level of exposure to major supermarket chains
- Diversity of product lines
- Consumer trends for products or product segment
- Split of domestic versus international sales
- Reliability of supply relationships
Factors such as increasing health awareness, unpredictable input prices and fluctuations in disposable household incomes have significantly influenced the industry’s operations in recent years. Major strategic and financial buyers are on the lookout for unique businesses to acquire, thanks to the health and premiumisation trends and the growing market dominance of large supermarket chains and premium brands.
To learn how Nash Advisory can assist you with the sale of your food business, please read our case study on Crackerjack Foods.
Waste and Industrial
The Waste and Industrial sector has had its share of challenges, with slower growth rates compared to other industries. However, companies in this sector are continuously innovating and redefining practices by embracing new technologies, helping to create value and differentiate from competitors.
Multiples in this sector are between 5-10x. These can be dependent on:
- Level of assets in the business
- Level of vertical integration of services
- Regulatory environment
- Specialisation and barriers to entry
- Government contracts and other contracted revenue
EBITDA multiples for waste and industrial businesses have remained quite steady. However, the sector has experienced some growth due to increased efficiencies from automation and innovation, suggesting a positive outlook for the future.
Both state and federal governments are focusing on environmental policy changes, creating high demand for companies that can provide solutions in this area. Additionally, large diversified industrial companies are actively acquiring to enhance their capabilities and strengthen their growth potential.
To learn how Nash Advisory can assist you with the sale of your waste and industrial business, please read our case study on Total Drain Group.
Education
The education sector is characterised by public sector, private sector, NGOs and not-for-profits, which makes for a unique blend of interests and motivations. As one of the Australia’s biggest export industries, the education sector has recovered post-pandemic with sub-sectors such as online education and education technology presenting new opportunities for growth.
Multiples for this sector range depending on the type of service provided, but typically are in the range of 5-12x. This can be dependent on:
- Type of service provided
- Length and breadth of course offering
- Quality of content and courses
- Type of courses offered
- Types of students
Although many sectors are subject to the changing preferences of governments, education is particularly sensitive to regulatory changes. Given the economic and population tailwinds supporting the long term growth in the sector, interest has continued to come from local and international buyers, including strategic and financial buyers.
To learn how Nash Advisory can assist you with the sale of your education business, please read our case study on The Great Aussie Bush Camp.
IT and digital
As the adoption of technology has accelerated due to the pandemic, the diverse needs of the consumer have allowed small to medium sized businesses to carve out profitable niche businesses without bumping heads with the major international corporations.
Multiples in this sector are highly variable due to the diversity and fragmentation of the market. Multiples range from 5-15x and can be dependent on:
- Revenue or business model
- Quality of clients and spread of customers
- Scalability of business model
- Presence in multiple markets
- Pace of change of technology
Given the ability to scale and outsource to remain cost-competitive, acquisition activity has been supported by large strategic buyers. Other interested parties also include those looking to vertically integrate services into their existing offerings, and financial sponsors attracted by the consistent earnings and growth of the sector.
To learn how Nash Advisory can assist you with the sale of your IT and digital business, please read our case study on TenderSearch.
Energy, Power and Utilities
Given the ability to scale and outsource to remain cost-competitive, acquisition activity has been supported by large strategic buyers. Other interested parties also include those looking to vertically integrate services into their existing offerings, and financial sponsors attracted by the consistent earnings and growth of the sector.
Multiples in this sector generally range from 6-12x and can depend upon:
- Number of customers
- Cost per customer acquisition
- Generation capacity
- Sustainability of the technology
- Regulatory environment
- ESG practices
Various macro-economic and political factors continue to lead a strategic shift in investments, directing capital away from assets incompatible with the transition to net zero. This shift potentially poses challenges for certain subsectors in securing future investment. However, companies that continue in innovating and advancing towards low carbon and renewable energy sources are anticipated to drive further acquisition activity.
To learn how Nash Advisory can assist you with the sale of your energy, power and utilities business, please read our case study on Water Treatment Services.
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Transport and Logistics
In Transport and Logistics, growth has typically been found in new entrants with a focus on a technology-enabled solutions that facilitate operational efficiency, cross-border support, parcel tracking and deep sector expertise.
The multiples for this sector tend to trade between 4-13x. This is dependent on a number of factors:
- Volume of cargo managed
- Cartage specialisation
- Geographic partners and their effectiveness
- Access to priority trade routes
- Supply chain support
- Type of logistics operations
- Level of automation
Large organisations need to consider how they can remain relevant as consumer and business purchasing trends change because of the pandemic. Acquisition activity in the sector is expected to be strong as businesses seek every advantage possible to compete in congested trade routes.
Healthcare
The growing healthcare needs of Australia continue to drive significant private investment from domestic and foreign parties. The sustained high level of competition and expanding pools of capital have led to high multiples across the sector.
Our research suggests the multiples in healthcare can be in the range of 6-14x. This varies depending on:
- National presence
- Degree of nationalisation
- Effective use of technology
- Exclusivity in product or category distribution
- Customer demographic
- Nationalise
- Contracts with government
- Scalability
- Growth prospects
The Australian Healthcare sector is being supported by strong and consistent tailwinds, including increasing healthcare expenditure as a proportion of GDP, a growing and ageing population, technology proliferation and strong foreign investment. Global trends affecting Healthcare M&A include portfolio optimisation via divestitures, sector consolidation and defensive growth characteristics.
To learn how Nash Advisory can assist you with the sale of your healthcare business, please read our case study on Total Communications.
Tourism
The travel and tourism industry are one of Australia’s most important industries, historically accounting for ~ 10% of annual GDP. Domestic tourism, which fell sharply in early 2020 due to the Covid-19 Pandemic, has bounced back comparatively quickly, and is now tracking above pre-pandemic levels. The pace of international recovery varies by source market, however, the current forecast growth profile for international arrivals is trending upwards, instilling confidence in the travel and tourism sector.
Multiples for tourism businesses can be in the range of 7-13x. This is largely dependent on:
- Target demographics
- Service offering
- Barriers to entry
- Contracts or licenses for operations
- Capital intensiveness
As domestic and international tourism continues to recover, and surpass pre-pandemic levels in particular sub-sectors, private equity firms and global tourism operators are continuing to grow via acquisitions. This trend signals market confidence as these entities strategically positions themselves to capitalise on the anticipated resurgence and strength of the tourism and travel industry.
To learn how Nash Advisory can assist you with the sale of your tourism business, please read our case study on Lake Argyle Resort.
eCommerce
The Australian eCommerce sector has enjoyed steady growth in the wake of COVID-19 with consumer habits stabilising and new entrants consolidating their positions. The pandemic spurred a significant number of new sector participants and this increased competition resulted in higher product quality and increased innovation which has led to a minor increase in the historically-low sector multiples. The revenue multiples for eCommerce businesses tend to be in the range of 1-6x. These can be dependent on:
- Business life sate
- Customer profile and purchasing patterns
- Growth porostpects
- Level of brand recognition
- Website and software quality
- Onnovation prospects
- Supply chain agreements
- Sales diversification
Favourable tailwinds and sector innovation have seen the eCommerce sector attract interest from private equity and large strategic buyers. These buyers are particularly interested in customer profiles and purchasing patterns, emphasising the value of repeat customers. The tailwinds supporting this sector include the adoption of Artificial Intelligence, online-to-offline transactions and augmented reality.
Professional Services
The professional services industry, like many others, has undergone a period of disruption as firms adapt to ongoing technological advancements and the integration of artificial intelligence. Upskilling and specialisation have become key areas of focus for the sector, driven by increasing demand for consulting services.
Multiples in the sector can be highly variable and generally range from 5-10x. This is generally dependent on:
- Diversity and length of client relationships
- Contracted/recurring revenue
- Key man risk
- Specialisation in growing markets
- Incorporation of internal IP and digital tools
- Ability to attract and retain talent
Given the diverse nature of the professional services industry, there are significant opportunities for large trade buyers and private equity investors to consolidate their market presence through strategic acquisitions. This trend has become increasingly apparent in recent years, with the Big 4 firms consolidating their positions as industry leaders through the acquisition of smaller specialised firms.
To learn how Nash Advisory can assist you with the sale of your Professional Services business, please read our case study on Point Advisory.
