How do I value a business I want to buy?

Full Explanation

Valuing a target starts with a multiple of earnings and ends with a judgement about intangible assets. Begin with normalised EBITDA — the target's earnings adjusted for one-offs and owner-specific costs — and apply a multiple informed by the sector, the target's size and growth, and comparable deals. That gives an enterprise value, from which you bridge to a price by adjusting for cash, debt and a normal level of working capital. But the multiple is only as sound as what sits beneath it, so the real work is testing the quality and durability of the earnings: how concentrated and contracted the revenue is, whether the technology and IP are owned, how dependent the business is on its founder, and how much of the value would survive a change of control. When you buy, you also decide how the purchase price is allocated across the assets acquired, which has accounting and tax consequences. Seeing the intangibles clearly before you pay is the edge. See [how to value a business to buy](/insights/how-to-value-a-business-to-buy), and for allocation, [purchase price allocation](/valuation/ppa). To assess a target's intangible assets, [see Opagio Intangibles in action](/opagio-intangibles).

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