After matching a financial or strategic buyer’s mandate with a target, landing the M&A engagement and building & executing on a buyer list, it is up to the investment banker to work with the buyer and seller to structure a deal. Deal structures initially involve a rough range of valuation to make sure that both parties are in the sphere of reasonability. Reasonable deals typically look like the following:
4x <$1M EBITDA
5x ~$1M EBITDA
6x $1M – $2M EBITDA
7x >$2M EBITDA
From there we should get an understanding of whether this is:
- Going to be a majority or minority ownership
deal
- Whether the owner plans on staying as a CEO after the transaction or whether there is existing management in place
- Owner financing is available
- Earn outs