Valuation Multiples for an Arcade and Entertainment Complex
Businesses in the arcade and entertainment industry operate video game arcades and family entertainment centers. Many arcade and entertainment complexes also include food and beverage services. There are about 6,900 arcade and entertainment complexes in the United States. According to IBIS World, the arcade and entertainment industry generates about $3 billion dollars of revenue annually. However, industry profit has declined at a steady rate for several years. We can expect this trend to continue as consumers begin to prefer alternative recreational activities. This may present difficulties for businesses in the arcade and entertainment industry. Despite these challenges, success is still attainable for arcade and entertainment complexes. Whether you are buying, growing, or selling an arcade and entertainment complex, it is vital to understand the value of an arcade and entertainment complex. This may include learning about valuation multiples for an arcade and entertainment complex.
Valuing an Arcade and Entertainment Complex
Understanding the principles of valuing arcade and entertainment complexes is crucial to succeed in this industry. This can help you take the next steps in maximizing the value of an arcade and entertainment complex. To learn how to value an arcade and entertainment complex, receive a business valuation. If you are looking to buy an arcade and entertainment complex, you may learn about effective negotiation strategies during a valuation. In addition, a business appraisal may help determine a fair purchase price. If you are selling an arcade and entertainment complex, a business valuation can help you decide on a listing price.
During a business valuation for an arcade and entertainment complex, business appraisers may use valuation multiples to determine a fair market value. In this article, we discuss valuation multiples for an arcade and entertainment complex. However, this article is only a guide. To learn more about valuation multiples for arcade and entertainment centers, receive a business valuation. Peak Business Valuation is a professional business appraiser. We can provide you with a business appraisal and answer any questions you may have. Start by scheduling a free consultation with Peak Business Valuation today!
For more information read Valuing an Arcade and Entertainment Complex, How to Value an Arcade and Entertainment Center, and Value Drivers for Arcades and Entertainment Complexes.
Valuation Multiples for an Arcade and Entertainment Complex
The following image displays average valuation multiples for an arcade and entertainment complex. Keep in mind, these values are only a guide. For more accurate information, receive a business valuation for an arcade and entertainment complex. This is beneficial whether you are buying or selling an arcade and entertainment complex. Schedule a free consultation with Peak Business Valuation, business appraiser, 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 similar to ratios in the sense that they compare two factors. When using valuation multiples, business appraisers compare the value of the arcade and entertainment complex to a financial metric. This may include cash flow, sales, or earnings. For example, the SDE multiple is a popular ratio in business valuation. The SDE multiple compares an arcade and entertainment complex’s value to its seller’s discretionary earnings. By applying the multiple to an arcade and entertainment complex, valuation analysts can determine the fair market value of an arcade and entertainment complex.
For example, an arcade and entertainment complex has $356,000 in seller’s discretionary earnings and receives a 2.36x SDE multiple. Using these metrics, the arcade and entertainment complex is worth about $840,160. ($356,000 times 2.36x) Contrarily, if it receives a 3.26x multiple, the value of the company would be $1,160,560. ($356,000 times 3.26x).
Peak Business Valuation, business appraiser, works with many individuals who are buying or selling an arcade and entertainment complex. At Peak, we often utilize valuation multiples when valuing an arcade and entertainment complex. In the following paragraphs, we discuss average market multiples for an arcade and entertainment center. These values represent a range of value that arcade and entertainment complexes often transact at. Please note that the range of value may vary since each business is unique. Below, we highlight SDE, EBITDA, and REV multiples for an arcade and entertainment complex.
SDE Multiples for Arcade and Entertainment Complexes
Average SDE Multiple range: 2.12x – 3.39x
On average, arcade and entertainment complexes transact between a 2.12x – 3.39x SDE multiple range. To determine the fair market value of an arcade and entertainment complex, apply the multiple to the seller’s discretionary earnings of the arcade and entertainment complex. See the calculation below.
SDE X Multiple = Value of the Business
For example, an arcade and entertainment complex generates $386,000 in SDE and transacts at a 2.73x multiple. As such, the arcade and entertainment complex is worth approximately $1,053,780.
$386,000 X 2.73x = $1,053,780
Business appraisers often use SDE multiples when valuing an arcade and entertainment complex. When considering SDE, valuation experts add back any expenses the new owner may not incur to the operating profit of the arcade and entertainment complex. Common add-backs typically include the owner’s compensation, non-related or non-recurring business expenditures, and personal expenses. This helps the business appraiser determine the cash flow potential of the arcade and entertainment complex.
EBITDA Multiples for an Arcade and Entertainment Complex
Average EBITDA Multiple range: 2.86x – 3.64x
According to our data, the average EBITDA multiples for arcade and entertainment complexes range between 2.86x – 3.64x. Apply this multiple to an arcade and entertainment complex’s EBITDA to derive an implied value of the business. Refer to the following equation.
EBITDA X Multiple = Value of the Business
For instance, an arcade and entertainment complex has an EBITDA of $320,000 and transacts at an EBITDA multiple of 3.38x. In this example, the arcade and entertainment complex is worth about $1,081,600.
$320,000 X 3.38x = $1,081,600
The EBITDA multiple measures an arcade and entertainment complex’s return on investment (ROI). Valuation analysts may use EBITDA multiples since they help normalize differences. Normalized differences allow for comparisons to be made between similar arcade and entertainment complexes. These ratios provide accurate projections of the future earnings an investor can expect from an arcade and entertainment complex.
REV Multiples for an Arcade and Entertainment Complex
Average REV Multiple range: 0.57x – 0.68x
According to Peak’s database, arcade and entertainment complexes sell an average of 0.57x – 0.68x of revenue. At Peak Business Valuation, business appraisers may calculate the implied value of the entertainment center by multiplying its revenue or sales by the REV multiple. See the following calculation.
Revenue X Multiple = Value of the Business
In this example, an arcade and entertainment complex generates $1,700,000 in revenue. If it transacts at a 0.62x multiple, the arcade and entertainment complex is worth approximately $1,054,000.
$1,700,000 X 0.62x = $1,054,000
REV multiples measure the amount of revenue the arcade and entertainment complex generates. In most cases, valuation experts rely on cash flow multiples – SDE and EBITDA to value an arcade and entertainment complex. However, they will use their knowledge and expertise to determine which methods and multiples are best for your arcade and entertainment complex.
Summary
When using the market approach to value an arcade and entertainment complex, business appraisers use valuation multiples. There are various multiples that an expert may use depending on the business transaction and the purpose of the valuation. To understand which valuation multiples are applicable to your arcade and entertainment complex, receive a business valuation. This can also help you understand how to maximize the value of an arcade and entertainment center you are buying or selling.
Peak Business Valuation, business appraiser, values arcade and entertainment complexes throughout the country. We are proficient in valuing arcades and entertainment centers using valuation multiples. Peak is happy to provide you with a business appraisal for an arcade and entertainment complex. In addition, we can answer any questions you have about the multiples for an arcade and entertainment complex. Start now by scheduling a free consultation with Peak Business Valuation below!
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