EBITDA OUR DAILY, GIVE US TODAY.

EBITDA OUR DAILY, GIVE US TODAY. When a company is sold, the purchase price is in most cases calculated through a transaction multiple of EBITDA (the company’s earnings before interest, taxes, depreciation and amortization). The amount of multiple to be used in a particular transaction depends mainly on the company’s industry, performance and market potential. While the multiple for a traditional manufacturing firm may be at 5 to 10 times EBITDA, for a fast-growing fintech firm with a unique product it may be as high as 20 times. Consequently, the multiple sometimes decreases (if a minority stake is sold) or increases (if a majority stake is sold). Multiples are always applied to adjusted (normalised) EBITDA. What does this mean in practice? 📌 Before the sale takes place, the buyer/investor conducts legal and financial due diligence on the target company. 📌 As part of the financial due diligence, the buyer also examines the company’s profitability (EBITDA), which is sustainable (i.e., which the company is able to achieve over the long term) and which is not distorted by one-off and non-standard transactions that are not directly related to the company’s business (e.g., one-off transfers of real estate out of the company, transactions between related companies). 📌 The buyer reduces the declared EBITDA by these ‘normalisation’ items identified in the financial review and applies the adjusted EBITDA to calculate the purchase price. In practice, we sometimes encounter owners myopically starting purchase price negotiations with an “inflated” EBITDA. However, any standard and experienced buyer, in cooperation with financial due diligence advisors, will identify these substandard transactions and reduce the EBITDA by the amount acceptable to them. I also talked about how long the legal and financial due diligence of a company takes, what is examined within it and what are its specifics on the Slovak market in the podcast of the🎙️TREND magazine with Veronika Vaňková. 🔎 The topic of financial and legal due diligence for sales and investments in Slovak companies will be one of the topics of our M&A, private equity and venture capital conference on 13.3.2025 – https://lnkd.in/ejB9PKBk.