Valuation Multiples for a Food Distributor
If you are looking to buy, grow, or sell a food distribution business, it is vital to receive a business valuation. As part of a food distribution business valuation, business appraisers often use valuation multiples for a food distributor to calculate the company’s fair market value. Additionally, a food distribution valuation assesses a food distributor’s strengths, weaknesses, risks, and opportunities. Understanding these factors can help you make strategic decisions to find success in the food distribution industry.
This article highlights food distribution business valuation multiples. Keep in mind that the values in this article are only averages. For specific guidance, obtain a food distribution business valuation.
As a professional business appraiser, Peak Business Valuation often helps individuals looking to buy, grow, or sell a food distribution business. We are happy to provide you with a business valuation for a food distribution business. In addition, we can answer any questions on valuation multiples for a food distributor and how to value a food distributor. Start today by scheduling a free consultation with Peak Business Valuation below!
Valuing a Food Distribution Business
Business appraisers often use the market approach to value a food distribution business. This is a common business valuation approach that involves using valuation multiples for a food distributor. This article discusses SDE, EBITDA, and REV multiples for a food distribution business. For more information, see Valuing a Small Business or reach out to Peak Business Valuation!
Valuation Multiples for Food Distribution Businesses
The following image displays the average range of valuation multiples for a food distribution business. To learn what valuation multiples are best for your company, receive a food distribution business valuation. Peak Business Valuation is here to help! Schedule your free consultation with Peak Business Valuation today!
Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
What is a Valuation Multiple?
Valuation multiples are ratios that help business appraisers determine the fair market value of a food distribution business. These ratios provide an estimate of value based on financial metrics like earnings, cash flow, and sales revenue. For example, SDE multiples are common when valuing a food distribution business. The SDE multiple measures the implied value of a food distribution business to its seller’s discretionary earnings.
For instance, a food distribution business has $700,000 in seller’s discretionary earnings. If the company receives a 2.56x SDE multiple, the business has an estimated value of $1,792,000 ($700,000 times 2.56x). On the other hand, if it receives a 3.15x multiple, the food distribution business would be valued at $2,205,000 ($700,000 times 3.15x).
As a business appraiser, Peak Business Valuation works with food distribution businesses throughout the nation. As such, we are skilled and experienced in valuing a food distribution business. The following sections highlight SDE, EBITDA, and REV multiples for a food distributor. Keep in mind, the range of values vary since each business is unique.
SDE Multiples for a Food Distribution Business
Average SDE Multiple Range: 2.37x – 3.38x
According to Peak, food distribution businesses transact at an SDE multiple range of 2.37x – 3.38x. Business appraisers apply the multiple to a food distribution business’s SDE to estimate its fair market value. The equation is as follows:
SDE X Multiple = Value of the Business
For example, a food distribution business generates $720,000 in seller’s discretionary earnings and transacts at a 2.91x multiple. In this example, the value of the food distribution business is around $2,095,200.
$720,000 X 2.91x = $2,095,200
Peak Business Valuation, business appraiser, often works with SDE multiples when valuing a food distribution business. To determine a food distribution business’s SDE, a valuation analyst adds back any expenses that may not be incurred by the new owner to the operating profit of the food distribution business. Some common adjustments are non-recurring or non-related business expenses, fair owner’s compensation, and personal expenses. This helps determine the cash flow potential of the food distribution business. To learn more, see Understanding Seller’s Discretionary Earnings.
EBITDA Multiples for Food Distribution Businesses
Average EBITDA Multiple Range: 2.86x – 4.54x
Next, EBITDA multiples for a food distribution business fall between 2.86x and 4.54x on average. Business appraisers will apply the multiple to the company’s EBITDA to get an accurate estimate of its value. The equation for valuing a food distribution business using an EBITDA multiple is as follows:
EBITDA X Multiple = Value of the Business
For instance, a food distribution business generates $615,000 in EBITDA. If it transacts at an EBITDA multiple of 3.42x, the food distribution business is worth about $2,102,700.
$615,000 X 3.42x = $2,102,700
EBITDA multiples help determine a food distribution business’s return on investment (ROI). Business appraisers at Peak may use EBITDA multiples for food distribution businesses since they help normalize differences. Normalized ratios provide a more accurate projection of the business’s future earnings. In addition, normalizing differences enables business appraisers to compare the food distributor to similar companies on the market.
REV Multiples for a Food Distribution Business
Average REV Multiple Range: 0.14x – 0.98x
Finally, food distribution businesses generally transact at a revenue multiple within the range of 0.14x – 0.98x. Business appraisers can estimate the value of a food distribution business by multiplying the company’s revenue by the multiple. Refer to the equation below:
Revenue X Multiple = Value of the Business
If a food distribution business generates $8,250,000 in revenue and transacts at a 0.28x multiple, the business is valued at $2,310,000.
$8,250,000 X 0.28x = $2,310,000
REV multiples reflect the total amount of revenue a food distribution business generates. Keep in mind that REV multiples are less reliable when valuing a food distribution business. At Peak, our valuation experts often rely on the cash flow multiples—SDE and EBITDA. However, valuation experts will determine which methods and multiples most apply to your food distribution business as part of the valuation process.
Summary
Whether you are buying, growing, or selling a food distribution business, it is important to receive a business valuation. This can help you make strategic decisions to find success in this industry. In addition, it is helpful to learn about valuation multiples for a food distribution business. These metrics provide a deeper understanding of the value of a food distribution business. To find out which methods and multiples are most suitable for your business, receive a food distribution business valuation.
Peak Business Valuation, professional business appraiser, works with many food distributors across the United States. We are happy to help you with a business valuation for a food distribution business and answer any questions you have on valuation multiples for a food distribution business. Start today by scheduling your free consultation with Peak Business Valuation below!
