Video Transcript Below (Nigel Reynolds – Pricewaterhouse Coopers)
So having a real understanding of what you’re trying to achieve is fundamental. Building a business that gives you revenue your on year on year in the shorter term. What you need for an exit is a recurring type revenue stream will probably give you a greater multiple than a revenue stream that you have to recreate each year.
It is as long as a piece of string to some extent. And you see different multiples being used. You see some businesses using multiples of revenues, and you might see a one times revenue, two times revenue. Some businesses using multiples of EBITDA.
And EBITDA is generally a closeish estimate of what your cash inflows are. So probably where we were seeing multiples of eight to 10 two years ago, those multiples are more likely to be four to five now. So there has been quite a significant reduction in the type of EBITDA multiples that businesses are getting.
And from a purchasing company’s perspective, the level of debt that they can get when they’re buying is significantly reduced, as well. Again, in some of the private equity deals, we were seeing eight times EBITDA multiples in 2007. It’s very rare for anyone to be getting much more than about three times EBITDA multiple now. So they can’t — the company buying, and particularly private equity, can’t pay the same amount for the businesses that they used to pay two years ago.
+ Ravi Peal-Shankar
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