M&A Activity -- Expect a Surge in Mergers
A company, for example, may have a total enterprise value of $10 million. If this company has $3 million in funded debt, the shareholder will receive $7 million for his equity at closing.
Buyers and valuators derive enterprise value by applying a multiple to normalized EBITDA. The present range of multiples in the printing industry is from 3.0 times to as much as 5.5 times for the most desirable targets. Multiples can vary widely from one printing segment to another, so do not expect, simply because you love your "enormously desirable," $7 million, unionized, commercial sheetfed printing company, that your valuation will be assigned a multiple at the high end of the range.
Furthermore, do not assume since your company, in your mind, is so "special" that it deserves an even higher multiple than those stated above. In addition, although you may recollect or have heard that much higher multiples were being paid in the late 1990s, do not expect the multiples of yesteryear. It will not happen. Finally, if you bother to calculate the multiples being paid in the mega-deals, you must remember that those values are being assigned to the enormous revenues and the capabilities of companies whose stock is widely held and liquid in the public markets.
Sellers who enter the market with "stars in their eyes" because their brother-in-law accountant told them their company was worth some pie-in-the-sky value will not sell their companies and will live forever in a state of angry disillusionment.
Unprofitable/ ("Underwater") Company Valuations
Sellers whose companies have minimal EBITDA and/or excessive debt may find that their valuation must be based on Adjusted Book Value. This requires a professional valuation to determine the fair market value of the current and fixed assets; then subtracting the current and fixed liabilities to arrive at Adjusted Book Value.