Are you more focused on intrusion, with service / monitoring contracts or more focused on video / access new installs?
The company that we are looking to buy is focused on video/access new install.
The method most used is looking at ebitda of a business. The range is 3 to 4x. If the business is growing it would be 4x. There is an exercise to normalize the earnings. This is nevessary, for example where owners are either over or under drawing salaries from business. This means restating earnings where fairmarket costs for a manager is applied. The normalizing is done for other items that might increase or decrease ebitda, like personal expenses that are paid by company. Check google out. crazy evaluations where there is not enough ebitda to warrant the purchase price then it may be done for strategic purposes and the acquirer is either from outside the market area or from a different industry.
To give some context to EBITDA valuations, here are the Enterprise Value / EBITDA ratios for a few well known companies in security:
I do believe that 3x to 4x EBITDA is common for valuating integrators. And, at 3x to 4x EBITDA, typically this results in a valuation of 1x annual sales or less. Also, this is generally much lower than the valuation of manufacturers or service providers with RMR (as the examples above show).
Silva Consultants | 10/31/14 03:58pm
In the case of most small integration companies, the real value is often in the people rather than the hard assets. Over the years, I have seen many integration companies purchased by outside parties and then soon collapse when key people start to leave.
Robert also makes some great points. When considering EBITDA, you must be sure that the company owner is getting paid a fair salary before calculating profits. Often, when you take a hard look at a small integration company, you see that it really just provides a salary for its owner, and is worth little or nothing as a stand-alone business to an outside buyer.
Thanks all for the feedback. One more question, What is the industry average for net profit on this type of companies (video/access)?