11 May 2007
Figuring out our EBITA multiple
I’ve been doing some research trying to figure out a normal EBITA multiple for a company like Carson Systems. I think it’s important to have some idea what your company is worth, so you can do financial planning for your future.
The problem is we do so many things! Vitamin, DropSend, Amigo, FOWA, FOOA and FOWD.
In regards to our conference business, I’ve had a look at one of the few publicly traded events companies, which is Informa. They’ve got a P/E ratio of around 17, which seems quite hight to me. I’m thinking that if we ever sold the conference business, we’d get around 5x – 7x multiple on yearly profit. But as we learned with DropSend, something is only worth what someone will pay and no formula will calculate that for you!
If anyone has any experience in valuing businesses, please share!
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Aaron Dragushan
# May 11, 2007 - 10:12 am
I’m not so sure EBITA matters so much for valuing an internet business. It’s a decent metric to follow to keep an eye on the health of your business, but online businesses like yours are often bought and sold with an emphasis on strategic value.
EBITA leaves out word-of-mouth, brand power, goodwill, influence, scalability, the ability to expose the technologyto a larger audience, innovative mindset of the team and the startup’s corporate culture. Lots of the stuff that makes an internet startup interesting.
Odeo, Reddit, Hotmail, JotSpot, Del.icio.us, YouTube, Writely, Flickr…
All acquired for strategic reasons. Usually to expose their technology to a larger audience, and sometimes to bring fresh innovative thinking & people into the company. When Blogger was acquired, Google just made it free because it made so little money as to be not worth the effort.
Few bean-counters in the world would have valued DropSend at a million dollars, but that doesn’t mean it’s not worth that much to the right person. If the person across the table from you keeps coming back to that they’re probably not The One.
EBITA is great when you focusing on RUNNING your business, surviving, bootstrapping, etc.
EBITA is the wrong thing to focus on when SELLING your business, since it undervalues companies in this industry.
Ryan Carson
# May 11, 2007 - 11:28 am
Thanks Aaron. However, I’m referring to our conference business primarily. I think that’s a bit more straight forward than valuing DropSend/Amigo.
Andrew
# May 11, 2007 - 2:38 pm
While on the subject of Dropsend/Amigo. Could you give an update on how those services are doing. Since announcing the possible sale of Dropsend, have your numbers/ revenue dropped/increased/levelled? Is Amigo profitable and growing?
Aaron Dragushan
# May 11, 2007 - 9:54 pm
Ryan,
Ah, fair enough then.
BTW it would be neat to hear you talk about how you manage two diverse businesses (conference + web apps) and whether or not you think focussing on just one side would let you move faster.
Andrew Bargery
# May 13, 2007 - 7:12 pm
A few years ago I was involved with preparing a niche London tech PR agency to be sold. The valuation was extremely difficult and our expectations varied wildly from the offers we received in the first round.
The reason for the differences I believe are that:
a) as a PR agency our main assets are people and knowledge, which made the business very vulnerable post sale in the event of a poor integration, cultural clash or whatever might cause people to jump ship, and
b) at the time the the tech industry was a little unpredictable which meant the long term valuation was seen to be optimistic.
As a conference business you might have similar issues, especially as in point a) in that I imagine much of the value comes from your people. I would ensure they are well embedded and tied in to prevent nervousness from suitors.
Avinash Karnani
# May 29, 2007 - 7:40 pm
Hey Ryan,
Me and our CFO are former tech ibankers, we can help with any valuation questions, or if you want a model or something im more than happy to send you one and talk you through it.
Best,
Avi
Ben Lorenzo
# March 27, 2008 - 11:55 am
Suppose I am valuing a business based on an EBIDA multiple of 6 equal to $60 million. It has cash on hand of $5 million and liabilities of $3 million. How do I compute for the net equity value of the company.
Ben