Valuation Multiples for a Food Manufacturing Business
The food manufacturing industry generates billions annually by producing and distributing essential food products. As such, operating a food manufacturing company has proven to be a lucrative business opportunity with high growth potential. If you are considering buying, expanding, or selling a food manufacturing business, a professional business valuation is vital. When conducting a food manufacturing business valuation, experts often leverage valuation multiples to determine the company’s fair market value. In addition, they will provide an analysis of your manufacturer’s strengths, weaknesses, risks, and growth opportunities. Understanding these factors is key to making informed decisions for your food manufacturing business.
This article explores the most common valuation multiples that Peak Business Valuation applies when valuing food manufacturing businesses. Please note that the valuation multiples we discuss are averages and are strictly for educational purposes. For applicable insights, we recommend obtaining a professional business valuation for a food manufacturing business.
As a professional business appraiser, Peak Business Valuation works with clients looking to buy, grow, or sell food manufacturing businesses. We are happy to provide you with an accurate and timely food manufacturing business valuation! Additionally, we can discuss any questions you may have about how to value a food manufacturing business. Start today by scheduling your free consultation below!
Valuing a Food Manufacturing Business
When valuing a food manufacturing business, valuation experts often rely on the market approach. This is a valuation method that uses valuation multiples to determine a business’s fair market value. In the following sections, we outline the most common valuation multiples for a food manufacturing business. For additional information, check out Valuing a Small Business or contact Peak Business Valuation!
Valuation Multiples for Food Manufacturing Businesses
The image below illustrates the average range of valuation multiples for food manufacturing businesses. To understand which multiples are most applicable to your food manufacturing business, it is best to obtain a business valuation. Peak Business Valuation is here to help! Schedule your free consultation with Peak today!
Disclaimer: These multiples are intended for educational purposes only. The information provided does not constitute valuation advice, nor does it represent the valuation opinion of Peak Business Valuation or its professionals. For personalized guidance, consult a qualified business valuation expert.
What is a Valuation Multiple?
Valuation multiples are key tools in determining the fair market value of a food manufacturing business. They are financial ratios that compare a business’s value to metrics such as earnings, cash flow, or sales. This provides a strong basis for estimating the value of a food manufacturing business. For instance, Seller’s Discretionary Earnings (SDE) multiples are often used to evaluate a manufacturer based on its cash flow.
For example, if a food manufacturing business has $550,000 in seller’s discretionary earnings and is valued at a 2.20x multiple, the estimated value is $1,210,000 ($550,000 times 2.20x). If the same business receives a 3.80x multiple, its estimated value would be $2,090,000 ($550,000 times 3.80x).
At Peak Business Valuation, we specialize in valuing food manufacturing businesses using valuation multiples. Below, we highlight SDE, EBITDA, and REV or revenue multiples for food manufacturing businesses. Please note that the multiples an expert uses depends on the unique details of your food manufacturing company.
SDE Multiples for a Food Manufacturing Business
Average SDE Multiple Range: 2.44x – 3.48x
Food manufacturing businesses typically sell at SDE multiples ranging from 2.44x to 3.48x. Business appraisers can estimate a food manufacturer’s fair market value by applying the multiple to the owner’s discretionary earnings (SDE). The formula is:
SDE X Multiple = Business Value
For example, if a food manufacturing business generates $590,000 in seller’s discretionary earnings and transacts at a 3.00x multiple, the estimated value would be $1,770,000.
$590,000 X 3.00x = $1,770,000
Calculating SDE involves adjusting the business’s operating profit to reflect its true cash flow potential. This process often includes adding back expenses that a new owner is unlikely to incur. These expenses may include items such as owner’s compensation, non-recurring costs, and personal expenses. This process provides a clear picture of the food manufacturing business’s cash flow potential. For more details, see Understanding Seller’s Discretionary Earnings.
Peak Business Valuation is here to assist you with a professional food manufacturing business valuation! We can also answer any questions on valuation multiples for a food manufacturing business. Start now by scheduling your free consultation with Peak Business Valuation!
EBITDA Multiples for Food Manufacturing Businesses
Average EBITDA Multiple Range: 3.20x – 4.21x
On average, food manufacturing businesses transact at an EBITDA multiple ranging between 3.20x and 4.21x. Valuation experts can apply this multiple to the business’s EBITDA to estimate its value. This is the equation they would use:
EBITDA X Multiple = Value of the Business
For example, if a food manufacturing business generates $500,000 in EBITDA and transacts at a 3.65x multiple, the business would be valued at $1,825,000.
$500,000 X 3.65x = $1,825,000
EBITDA multiples are particularly useful for assessing a food manufacturing business’s return on investment (ROI). It is also useful for comparing the financial performance of similar businesses.
Revenue Multiples for Food Manufacturing Businesses
Average Revenue Multiple Range: 0.44x – 0.75x
Finally, food manufacturing businesses generally transact between a revenue multiple range of 0.44x to 0.75x. Valuation analysts can calculate the food manufacturing business’s value by multiplying its revenue by the REV multiple. The equation is as follows:
Revenue X Multiple = Value of the Business
For instance, if a food manufacturing business generates $4,000,000 in revenue and transacts at a 0.55x multiple, the business is worth $2,200,000.
$4,000,000 X 0.55x = $2,200,000
Revenue multiples provide insights into a food manufacturing business’s total sales. However, they are often less reliable than cash flow multiples like SDE or EBITDA. Business appraisers will determine the most appropriate multiple for your food manufacturing business as part of the valuation process. Read The Valuation Process to learn more.
Summary
If you are planning to buy, grow, or sell a food manufacturing business, obtaining a business valuation is essential. As part of the valuation process, business appraisers may apply valuation multiples for a food manufacturing business. These financial ratios estimate the manufacturer’s fair market value based on various metrics. In addition, you will learn about the food manufacturing business’s strengths, weaknesses, risks, and opportunities. You can leverage this information to make strategic decisions for your food manufacturing business.
As a business appraiser, Peak Business Valuation values food manufacturing businesses across the country. We can provide you with a food manufacturing business valuation and answer any questions on valuation multiples for a food manufacturing business. Start by scheduling a free consultation with Peak Business Valuation today!
