A common question that I’m asked is, “Where are the current multiples for my industry?” The answer: it depends! Think about business valuation multiples as being an average or median of a data set. It’s likely that the company in question is not an average company, but rather is probably performing above or below the average of its peer group
It’s not fair to use an average multiple. Further, because it’s an average, you know that the actual transactions will skew quite a bit off of that average. While the average might be five times, you’re going to see a number of companies that sell at three times earnings, just as you will see companies that sell at seven times earnings. Because of this, answering the question, “Where are the current multiples for my industry?” does not yield a black-and-white answer. If I tell you five, and you use five, you may be giving up two turns or you may be overvaluing your company by two turns.
If you’re interested in learning more about company value multiples, please click the image above to watch our YouTube video. This is the third video in our business valuation video series. Follow the links below to watch our other videos: