Corporate Finance in Atlantic Canada

Commentary on corporate finance issues for small- & mid-market private companies in Atlantic Canada

Archive for May 2011


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The most common question I get is “What multiple should I use to value this business?”

We always answer with our standard response that it is difficult to reduce a complex subject to a simple one-word answer, but of course, everyone still wants a number, so the next answer is “It depends …”

The immediate problem with answering the multiple question is … a multiple of what?  It could be a multiple of earnings, but which earnings:

  • pre-tax or after-tax earnings?
  • EBITDA (earnings before interest, taxes and depreciation/amortization)?
  • EBIT (earnings before interest and taxes)?
  • free cash flow (i.e. cash flow after working capital changes and capital reinvestment)?
  • SDE (sellers discretionary cash flow, a measure sometimes used for very small businesses)?
  • forecast or trailing (i.e. last twelve months)?
  • etc.

Then there are other non-earnings multiples, such as of annual revenues or certain industry activity ratios, such as per subscriber.

I’ll write another time about the next challenge of understanding what the result is when you apply the multiple (business value, share value, etc).  But for now, when you hear someone say they use a multiple to determine value/price for a business, make sure you ask them … a multiple of what?!

Written by Dan Jennings

May 29, 2011 at 7:44 pm

Posted in CF Musings

Why some acquirors don’t like advisors like me

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Twice in the past month, I’ve had two different business acquirers (these are local financial buyers) say something like the following to me:  “No offense, Dan, but I don’t like to look at any businesses that advisors like you are shopping.”

Now, I could have taken offense (both times, and maybe develop a complex!) but instead, I asked why.  Essentially, in both cases, the answer was along the lines of:  “Because if your clients are using someone like you, the price is too high for my liking.”

I’ve been mulling over these comments.  After much thought, I believe both have indirectly paid me a compliment … although maybe they didn’t mean to!

It is no secret that my job as a sell-side M&A advisor is to obtain for my clients the highest possible price (and best possible terms) that the market will bear for their business.  We use a variety of techniques to achieve this, and many prospective purchasers don’t like our competitive bidding process … but in the end, it’s because the process forces buyers to improve their offers for a successful business.

I think both of the above buyers meant to imply that I encourage sellers to want more for their businesses (perhaps thinking that the sellers need a higher price to offset my fees!) … but they are missing the point.  I know for a fact that our competitive bidding process in M&A will result in the best possible price and terms from buyers, and it is that process that is the true gauge of market value for a business.  The reality is that there are many more buyers than sellers for successful, profitable private companies, so a well-run M&A process will result in the best possible deal for the seller … and that is why some buyers (particularly local financial buyers) don’t like to participate in an auction run by a good M&A advisor.

So, if these buyers don’t like to look at businesses that I’m selling (because they are forced to pay true market value), what does that say about the businesses that they do acquire (where they are the only bidder)??  Hmmm …

Written by Dan Jennings

May 21, 2011 at 9:56 am

Posted in CF Musings

Consolidation in the physiotherapy industry

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If you’re interested in the rehabilitation and physiotherapy sectors, you might want to check out the news release on Centric’s acquisition of Lifemark.

Lifemark has over 100 physio clinics across Canada (including in Atlantic) while Centric (CHH on the TSX) is a diversified and integrated healthcare service company.  This will make Centric one of the largest healthcare providers in the country.  It should also be noted that Lifemark apparently has a number of acquisitions in progress that will move ahead regardless of whether the transaction with Centric closes.

Written by Dan Jennings

May 18, 2011 at 10:01 am