Valuation Multiples for a Freight Trucking Company
Companies in the freight trucking industry ship various goods across North America. Freight trucking services typically include truckload and less-than-truckload shipping. According to IBIS World, there are over 570,000 freight trucking companies throughout the United States. As such, this industry is extremely fragmented and competitive. In addition, many freight trucking companies struggle to remain profitable due to rising and competitive labor costs. However, with a careful approach, you can find success in the trucking industry. Whether you are buying, growing, or selling a freight trucking company, it is vital to learn about valuation multiples for a freight trucking company.
Valuing a Freight Trucking Company
If you are looking to buy or sell a freight trucking company, it is important to know the value of a freight trucking company. To learn the value of a freight trucking company, receive a business appraisal. For buyers of a trucking company, a business appraisal can help determine a fair purchase price. In addition, you may learn about negotiation strategies for purchasing a freight trucking company. We can also help connect with an SBA lender who provides SBA financing for a trucking company. If you are selling a freight trucking company, a business appraisal can help you decide on a listing price. You will also learn how to maximize the value of a freight trucking company.
There are various valuation methods experts use when valuing a freight trucking company. The market approach is a common method that relies on valuation multiples. In this article, we discuss what valuation multiples for a freight trucking company look like. Keep in mind, this is only a guide. For more accurate guidance, obtain a business appraisal for a freight trucking company. Peak Business Valuation, business appraiser, is here to assist! If you have any questions about valuation multiples for a freight trucking company, reach out to Peak. In addition, we can provide you with a business appraisal. Start now by scheduling a free consultation with Peak Business Valuation!
Valuation Multiples for Trucking Companies
The following image displays average market multiples for a freight trucking company. During a business appraisal, Peak often utilizes market multiples. The multiples below are only averages. As such, they may not apply to your freight trucking company. To know what multiples and methods are suitable for your business, obtain a business valuation. Schedule your free consultation with Peak 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 compare a freight trucking company’s value to a financial metric. Often, this includes cash flow, earnings, and revenue or sales. A common valuation multiple is the SDE multiple. The SDE multiple compares the seller’s discretionary earnings of the company to the implied value of the business. To determine the fair market value of a freight trucking company, an appraiser assesses multiples of similar freight trucking companies that have recently sold. Then, they determine suitable multiples for your freight trucking company and estimate a range of value.
For instance, suppose a freight trucking company has $405,000 in SDE. If it receives a 2.59x SDE multiple, then the company would have an implied value of $1,048,950. ($405,000 times 2.59x) On the other hand, a 3.26x multiple would suggest the value of the business would be $1,320,300. ($405,000 times 3.26x).
Peak Business Valuation, business appraiser, often works with individuals looking to buy or sell a freight trucking company. Below are basic valuation multiples for a freight trucking company. These values reflect the range of values that freight trucking companies are often bought and sold at. Keep in mind, the range of value may vary since each freight trucking company is unique. In the following sections, we highlight SDE, EBITDA, and REV multiples for a freight trucking company. For more information, schedule a free consultation with Peak Business Valuation, business appraiser!
SDE Multiples for a Freight Trucking Company
Average SDE Multiple range: 2.44x – 3.45x
According to Peak Business Valuation’s data, freight trucking companies transact between an average SDE multiple of 2.44x – 3.45x. To calculate an implied value of a freight trucking company, apply the multiple to the seller’s discretionary earnings. See the calculation below.
SDE X Multiple = Value of the Business
In this example, a freight trucking company generates $690,000 in seller’s discretionary earnings and transacts at a 2.96x multiple. This implies that the business value is approximately $2,042,400.
$690,000 X 2.96x = $2,042,400
When valuing a freight trucking company, business appraisers often use the SDE multiple. To calculate SDE, valuation experts take the freight trucking company’s value and add back expenses the new owner may not incur. Some common add-backs include the owner’s compensation, personal expenses, and non-recurring or non-related business expenditures. This helps the business appraiser determine the cash flow potential of the freight trucking company. This is crucial when determining the value of a freight trucking company.
EBITDA Multiples for Trucking Companies
Average EBITDA Multiple range: 3.10x – 3.93x
Freight trucking companies transact at an average EBITDA multiple range of 3.10x – 3.93x. Apply this multiple to EBITDA to derive an implied value of the business. Refer to the equation below.
EBITDA X Multiple = Value of the Business
Suppose a freight trucking company has an EBITDA of $603,000. It transacts at an EBITDA multiple of 3.70x. Using the above metrics, the freight trucking company is worth about $2,231,100.
$603,000 X 3.70x = $2,231,100
EBITDA multiples measure a freight trucking company’s return on investment (ROI). Valuation experts may prefer using this multiple because it helps to normalize differences. This allows the appraiser to compare your company to similar businesses. Normalized ratios give a more accurate estimate of the future earnings a buyer can expect from a freight trucking company.
REV Multiples for a Freight Trucking Company
Average REV Multiple range: 0.26x – 0.76x
On average, freight trucking companies sell at a revenue multiple range of 0.26x – 0.76x. By multiplying a freight trucking company’s revenue by the valuation multiple, a business appraiser can calculate the implied value of a freight trucking company. The calculation is as follows.
Revenue X Multiple = Value of the Business
For example, a freight trucking company makes $3,400,000 in revenue. It then transacts at a 0.70x multiple. In this case, the business is worth approximately $2,380,000.
$3,400,000 X 0.70x = $2,380,000
The REV multiple measures the total revenue generated by the freight trucking company. This multiple is less common when valuing small businesses. Often, business appraisers rely on the cash flow multiples – SDE and EBITDA. However, they will use their knowledge and expertise to determine what is best for your freight trucking company.
When using valuation multiples for freight trucking companies, there are many factors to consider. Valuation multiples are crucial when determining the fair market value of a freight trucking company. To better understand valuation multiples, receive a business appraisal.
Peak Business Valuation, business appraiser, values freight trucking companies on a regular basis. We are happy to provide you with a business appraisal for a freight trucking company! As part of a business appraisal, we can help you understand how to maximize the value of your freight trucking company. In addition, you will learn what valuation multiples for a freight trucking company are applicable. Schedule a free consultation with Peak Business Valuation by clicking the link below!
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