hi Everybody, strange question but hopefully someone here has experience they could share (or an opinion which is also fair).
I have a friend whose father has a business. The father will retire this year and his children don’t have an interest in the business and they are not even in the same geography. Business in Africa, both children in Europe. One in Switzerland (my friend a biomedical engineer happy doing “science stuff”) and the other in UK is a successful lawyer.
The business is quite successful so I was trying to tell my buddy he should convince his father to sell the business and enjoy life. Initially my friend’s father was just going to close the business but now he is intrigued. There might even be a customer that would be interested in buying the business.
The question now is how should he value the business? Some multiple of revenue or operating profit? There is also all the customer database which is actually very valuable since relationships matter a lot in Africa (this is a B2B business that sells high turn single use items)
anyone has experience or ideas (or opinions)?
cheers
C
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I will give you some straight answers and more context later:
- valuation: private companies are evaluated on EBITDA multiple
- customer database: Check compliance. Was the data acquired with clients / customer agreement. Is the future use compliant? Many risks there
- database: pitchbook (most expensive) to mergermarket (cheaper). You can get a free trial or ask me or others here and can try to extract some multiples
More detailed answers.
- business in Africa. I assessed many businesses in Africa, compliance is often an issue. Being B2B may be better but consider this and also when selecting bidders as some (non-western are more flexible but paying less)
- valuation. Main elements are:
- revenue growth
- EBITDA margin and margin evolution
- free cash flow
- working capital
- CAPEX if any
Depending how well organized his company is, you could suggest the use of some investment bankers and / or auditors to prepare P&L, balance sheets, income statements and etc. as sometime for small businesses is very time consuming and could appear unprofessional if numbers are not well presented / reconciled.
If you need more help on revenue / EBITDA multiple, DM me the specific sub industry and revenue range ideally I can try to give some direction.
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Thanks SteveDB
clarity on customer database. I didn’t mean PII but rather opening doors at customers, rolling over running contracts, etc.
Some customers are buying groups with purchasing teams and (like it or not) a previous relationship and track record is very much valued. Knowing the family I don’t think there is anything which would be dodgy (the daughter is a lawyer after all) but there are likely “handshake deals” as they also have the local and state government bodies as customers (they’ve won and lost RFPs and as far as I know it’s a even split).
I don’t have access to the financials and I’m not sure I’d like to. I value the friendship relationship above business and don’t want it to be awkward.
I do appreciate the feedback though
FWIW the industry is medical/hospital single use items. EX: surgical gloves, sterile single use products, hospital consumables and accessories, etc.
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