Valuation Multiples for an Automotive Repair Shop
The automotive repair industry has experienced slight revenue and profit decline over the past several years. This is a result of various factors such as poor economic conditions and lower travel rates. Moving forward, IBIS World predicts that the automotive repair industry will benefit from increased car usage, the aging vehicle fleet, and declining new car sales. As such, demand for automotive repair services will likely increase. This is ideal if you are looking to buy, grow, or sell an automotive repair shop. However, automotive repair shops face intense competition. In addition, industry profit margins can be volatile. To succeed as an automotive repair shop owner, it is important to understand the value of an automotive repair shop. This includes understanding valuation multiples for an automotive repair shop.
Valuing an Automotive Repair Shop
When valuing an automotive repair shop, there are many factors to consider. On your own, this can be a complex process. As such, it is important to receive a business valuation for an automotive repair shop. There are many benefits that come with a business valuation. If you are buying an automotive repair shop, a business appraisal may help you identify a fair purchase price. You may also learn about effective negotiation strategies. If you are selling an automotive repair shop, a business appraisal can help you determine a fair listing price. Receiving a business appraisal can also help you maximize the value of an automotive repair shop.
Business appraisers often use the market approach to value an automotive repair shop. This valuation approach relies on valuation multiples to determine the fair market value of an automotive repair shop. In this article, we highlight valuation multiples for an automotive repair shop. However, this article is only a guide. As such, the information we provide may not be applicable to your automotive repair shop. For accurate information, receive a business valuation.
Peak Business Valuation is happy to help! We value automotive repair shops on a regular basis. We can provide you with a business valuation for an automotive repair shop and answer any questions you may have. Start now by scheduling a free consultation with Peak Business Valuation, business appraiser.
Valuation Multiples for an Automotive Repair Shop
The image below displays common valuation multiples for an automotive repair shop. It is important to note that the values below are only averages. To understand what valuation multiples are applicable to your automotive repair shop, obtain a business appraisal. Peak Business Valuation is here to help! Schedule a free consultation to learn more. In addition, see Valuing an Auto Mechanic Shop, How to Value an Automotive Repair Shop, and Value Drivers for an Automotive Repair Shop.
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?
A valuation multiple is similar to a ratio since it compares two values. Valuation multiples compare the value of an automotive repair shop to financial metrics like cash flow, earnings, or sales. For instance, SDE multiples are popular when valuing an automotive repair shop. The SDE multiple compares the value of an automotive repair shop to its seller’s discretionary earnings. Business appraisers compare the multiples of similar shops that recently sold to your automotive repair shop. This helps them accurately determine an accurate range of value for your automotive repair shop.
For example, an automotive repair shop has $272,000 in seller’s discretionary earnings. If it receives a 2.13x SDE multiple, the automotive repair shop has a fair market value of $579,360 ($272,000 times 2.13x). On the other hand, if it receives a 2.51x multiple, the value of the automotive repair shop would be about $682,720 ($272,000 times 2.51x).
Peak Business Valuation is a professional business appraiser. At Peak, we work with automotive repair shops across the nation. As our business appraisers are valuing an automotive repair shop, they often use valuation multiples for an automotive repair shop. In the next paragraphs, we show average ranges of valuation multiples for automotive repair shops. Automotive repair shops often transact between these ranges. Please note that each automotive repair shop is unique. As such, the range of value may vary. In this article, we discuss SDE, EBITDA, and REV multiples for an automotive repair shop.
SDE Multiples for an Automotive Repair Shop
Average SDE Multiple range: 2.02x – 2.73x
On average, automotive repair shops transact at an SDE multiple range of 2.02x – 2.73x. By applying an SDE multiple to the shop’s seller’s discretionary earnings, valuation experts can determine an implied value of an automotive repair shop. See the following equation.
SDE X Multiple = Value of the Business
For example, an automotive repair shop generates $175,000 in seller’s discretionary earnings and transacts at a 2.39x multiple. Here, the value of the automotive repair shop is about $418,250.
$175,000 X 2.39x = $418,250
SDE multiples are common when valuing small businesses. Business appraisers calculate an automotive repair shop’s SDE by adding back any expenses the new owner may not incur to the value of the automotive repair shop. Common add-backs include personal expenses, non-related or non-recurring business expenses, and a fair owner’s compensation. By considering these add-backs, valuation experts can determine the cash flow potential of the automotive repair shop. Knowing the cash flow potential is important when determining the value of an automotive repair shop.
EBITDA Multiples for Automotive Repair Shops
Average EBITDA Multiple range: 2.75x – 3.58x
According to Peak’s data, automotive repair shops transact at an average EBITDA multiple range of 2.75x – 3.58x. Business appraisers apply this multiple to a shop’s EBITDA to determine a fair market value of an automotive repair shop. See the equation below.
EBITDA X Multiple = Value of the Business
For instance, an automotive repair shop has an EBITDA of $128,000. It transacts at an EBITDA multiple of 3.17x. In this case, the automotive repair shop is worth $405,760.
$128,000 X 3.17x = $405,760
EBITDA multiples measure the return on investment (ROI) an automotive repair shop can expect. When valuing an automotive repair shop, business appraisers may prefer the EBITDA multiple since it helps normalize differences. This allows the analyst to compare your automotive repair shop to similar businesses. Normalized ratios also provide more accurate projections of the future earnings an investor can expect to receive from an automotive repair shop.
REV Multiples for an Automotive Repair Shop
Average REV Multiple range: 0.33x – 0.65x
Automotive repair shops transact at an average REV multiple range of 0.33x – 0.65x. Business appraisers can determine the implied value of an automotive repair shop by multiplying its total revenue by the multiple. The calculation is as follows.
Revenue X Multiple = Value of the Business
For example, an automotive repair shop makes $860,000 in revenue. If it transacts at a 0.52x multiple, the automotive repair shop is worth approximately $447,200.
$1,300,000 X 0.52x = $447,200
The revenue multiple measures the amount of revenue an automotive repair shop generates. REV multiples are less common when determining the value of an automotive repair shop. Business appraisers tend to rely on cash flow multiples – SDE and EBITDA. However, valuation experts at Peak Business Valuation use their knowledge to determine which multiples are best for your automotive repair shop.
Summary
Valuation analysts commonly use valuation multiples for an automotive repair shop when valuing an automotive repair shop. The valuation multiple(s) that the expert uses depends on various factors. To understand which methods and multiples are most applicable to your automotive repair shop, obtain a business appraisal. During a business appraisal, a business appraiser helps you understand how to maximize the value of an automotive repair shop. This is important whether you are buying, growing, or selling an automotive repair shop.
Peak Business Valuation, business appraiser, is proficient at valuing automotive repair shops. We are happy to help you find success in this competitive industry. Peak can provide you with a business appraisal for an automotive repair shop. In addition, we are happy to answer any questions you might have about valuation multiples for an automotive repair shop. Get started today by scheduling a free consultation with Peak Business Valuation.
