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The majority of company valuations today are based on multiples of revenues or EBITDA.Using the following...

The majority of company valuations today are based on multiples of revenues or EBITDA.Using the following data please state the company valuation for each of the scenarios below.[SaaS Revenue 4x multiple: Tech Enabled Service Revenue 1.5x multiple: Maintenance Revenue 2x multiple: Traditional Service Revenue 1x multiple: Positive EBITDA 15x multiple.]

  1. Company A has a mix of Tech Enabled and Traditional Service.The Tech Enabled Services total $4,000,000.00 annually and the Traditional Service totals $1,500,000.00.
  2. If the same company in “1” above had annual EBITDA of $750,000.00, which would be the better valuation?
  3. Company B has high growth SaaS revenue of $10,000,000.00 and Maintenance Revenue of $4,500,000.00.It also has annual operating EBITDA of -$350,000.00.Based on these facts would an offer of $31,000,000.00 for the company be acceptable?Please explain your answer.
  4. Company C is a pure Traditional Services company with $3,500,000.00 in annual revenue but $1,000,000.00 in EBITDA.Based on this should the owner accept a lower than standard 10x EBITDA multiple or $10,000,000.00?Please explain your answer.

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Expert Solution

Answer :

Company A
Valuation using Revenue Multiple:
Service Revenue Multiple Valuation
Tech Enabled $40,00,000 1.5 $60,00,000
Traditional $15,00,000 1 $15,00,000
$75,00,000
Valuation using EBITDA Multiple:
EBITDA Multiple Valuation
$7,50,000 15 $1,12,50,000
Thus, Valuation by EBITDA Multiple is better.
Company B
Valuation using Revenue Multiple:
Service Revenue Multiple Valuation
SAAS $1,00,00,000 4 $4,00,00,000
Maintenance $45,00,000 2 $90,00,000
$4,90,00,000
Valuation using EBITDA Multiple:
EBITDA Multiple Valuation
$3,50,000 15 $52,50,000
Thus, offer of $31000000 won't be acceptable as it has better valuation of $49000000.
Company C
Valuation using Revenue Multiple:
Service Revenue Multiple Valuation
Traditional $35,00,000 1 $35,00,000
$35,00,000
Valuation using EBITDA Multiple:
EBITDA Multiple Valuation
$10,00,000 15 $1,50,00,000
Thus, the owner should not accept $10000000 as it has better valuation of $15000000.

ekkarill92 answered 1 year ago
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