Weston Delray’s valuation methodology

valuation 1How we value a business is as much an art as science

What is fair value for an enterprise comes down to what someone might pay for the company. A strategic buyer may pay more than others and at times a seller will not sell to a strategic buyer.

Many methods are used to determine value when it comes to a transaction may it be; Book Value, Discounted Cash Flow, Multiple of Cash Flow and Multiples of something else—for example, some industries are valued at a multiple of subscribers, a multiple of revenue, etc.

Weston Delray’s Approach to Valuation

Weston Delray values Enterprises based on their ability generate maintainable, operating cash flows. We typically apply a multiple to the annual, maintainable operating cash flow as our starting point in the valuation process. We use verified EBITDA as a starting point of operating cash flow.

How do we get EBITDA

We use verified EBITDA as a starting point of operating cash flow.

As with life, EBITDA is not EBITDA and is subject to some adjustments.

History has taught us that we can expect normal adjustments to EBITDA

Normal EBITDA adjustments

Positive add backs to EBITDA may include

  • Compensation to a shareholder in excess of norms
  • Above market rental expense
  • Shareholder benefits in excess of norms
Add backs that may decrease EBITDA include:

    • Below market rents
    • Annual capital expenditures above norms
    • Normal staffing of the “C” suite

    Once sustainable EBITDA is determined, Weston Delray applies a multiple of EBITDA to determine the Enterprise Value. Our historical experience is that smaller middle market companies sell at three to five X. The multiple used will depend upon a number of factors including but not limited to the following:

    • Sales growth rate
    • Gross Profit Margin
    • Annual EBITDA
    • EBITDA margin
    • Working capital requirements
    • customer concentration

    How the deal is structured is important and may impact the EBITDA multiple.

    Other Seller Information


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