Valuation Multiples for Apparel Manufacturing
The apparel manufacturing industry includes businesses that manufacture both men’s and women’s clothing products. These businesses either purchase material and then cut and sew or knit the fabric and then cut and sew it into clothing products. Apparel manufacturers can create ready-to-wear apparel or custom apparel. If your apparel business only performs knitting fabric, see Valuation Multiples for Textile Mills.
Within the United States, there are around 5,000 apparel manufacturers. Due to high import competition, industry operators’ revenue is slowly decreasing. Apparel production is also mostly moving overseas to low-cost manufacturers. Due to these pressures, many apparel manufacturers choose to either leave the industry or expand their presence. Apparel manufacturers who choose to stay often compete based on quality, shifting from low-cost apparel to premium apparel. As such, if you are looking to buy, sell, or expand an apparel manufacturing business, obtaining a business valuation is key. A business valuation determines a fair market value for the apparel manufacturing business. A business valuation often uses valuation multiples for apparel manufacturing.’
For more information, see Valuing an Apparel Manufacturing Business. As well as Value Drivers for Apparel Manufacturing and How to Value an Apparel Manufacturing Business.
Valuing an Apparel Manufacturing Business
When valuing an apparel manufacturing business, a valuation expert will use several valuation methods. This can include the market approach and the income approach. Valuation multiples for apparel manufacturing are common when valuing the business using the market approach. The valuation expert will also consider important value drivers. These can include the cost of goods (the price of cotton), recurring revenue, and overseas vs local production, among others. The business appraiser valuing the apparel manufacturing business will also analyze the company’s financial statements and operations. They will then compare these to similar apparel manufacturing businesses.
Knowing the value of an apparel manufacturing business is an important part of buying or selling an apparel manufacturing business. A business appraisal or business valuation determines the fair market value of the apparel manufacturing business. It can also help you understand what your business’s strengths and weaknesses are compared to competitors.
If you plan on buying an apparel manufacturing business, a business appraisal for an apparel manufacturing business can help you negotiate a fair purchase price. We want you to feel confident in the transaction of an apparel manufacturing business.
If you plan on selling an apparel manufacturing business, a business valuation can help you decide on a fair listing price. Listing a business too high can deter potential buyers. A business appraisal can help you understand a range of values and what impacts that value.
Peak Business Valuation, business appraiser would love to help you understand the value of an apparel manufacturing business. We are happy to answer questions you have about valuing an apparel manufacturing business. Schedule a free consultation today!
Valuation Multiples for Apparel Manufacturing
The below diagram shows an overview of average valuation multiples for apparel manufacturing. It includes EBITDA, REV, and SDE multiples for apparel manufacturing businesses. Keep in mind that the below numbers are only a guide. For specific information about multiples for your apparel manufacturing business, schedule a free consultation. Peak Business Valuation, business appraiser, is here to help!
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 business appraiser often uses valuation multiples for apparel manufacturing businesses when determining the value. A valuation multiple compares two factors to each other; they are ratios. One of the most common valuation multiples for apparel manufacturing is an SDE multiple. The SDE multiple for an apparel manufacturer compares the seller’s discretionary earnings with the implied value of the apparel manufacturing business.
For illustrate, the seller’s discretionary earnings of an apparel manufacturing business are $416,000. If using a 2.85x SDE multiple, the implied value of the apparel manufacturing business is $1,185,600. ($416,000 times 2.85x) Whereas if a 3.12x SDE multiple is applicable, the apparel manufacturing business’s implied value is $1,297,920. ($416,000 times 3.12x)
When using valuation multiples for apparel manufacturing, the business appraiser will compare your business to similar apparel manufacturers that recently sold. The comparison helps to determine an appropriate market multiple for your apparel manufacturing business. This is just one method; the business appraiser often uses several valuation approaches to determine the fair market value of an apparel manufacturer.
As a business appraiser, Peak Business Valuation provides business appraisals for apparel manufacturers across the country. We love to work with individuals buying or selling an apparel manufacturing business. Get started with a business appraisal today by scheduling a free consultation below!
SDE Multiples for Apparel Manufacturing
Average SDE Multiple range: 2.68x – 3.54x
Within Peak’s database, the SDE multiples for an apparel manufacturer range between 2.66x – 3.20x. To calculate the implied value of the apparel manufacturing business, multiply seller’s discretionary earnings by the applicable SDE multiple. See the calculation below.
SDE X Multiple = Value of the Business
For example, an apparel manufacturer makes $430,000 in seller’s discretionary earnings. The business appraiser determines a 3.05x SDE multiple is applicable. Using the above calculation, the implied value of the apparel manufacturing business is $1,311,500.
$430,000 X 3.05x = $1,311,500
Small businesses commonly transact on the seller’s discretionary earnings multiple. This cash flow multiple is useful because it adds back potential expenses a new owner may not incur. To calculate the seller’s discretionary earnings, start with the company’s operating profit. Then the business appraiser adds back some or all the following expenses: a fair owner’s salary, any personal expenses ran through the business, and non-recurring or non-related business expenses, among others. For more information see Common Add-backs in Business Valuation.
EBITDA Multiples for Apparel Manufacturing
Average EBITDA Multiple range: 3.54x – 4.19x
According to our data, the average EBITDA multiples for apparel manufacturing fall between 3.89x – 4.47x. To derive the implied value of the apparel manufacturing business, take EBITDA and multiply it by the EBITDA multiple. The calculation follows.
EBITDA X Multiple = Value of the Business
For instance, the EBITDA for an apparel manufacturer is $329,000. It transacts at a 4.10x EBITDA multiple. Looking at the above calculation, the apparel manufacturing business’s approximate worth is $1,348,900.
$329,000 X 4.10x = $1,348,900
An EBITDA multiple is also a common cash flow multiple for small businesses to transact on. A valuation expert may prefer this multiple as it normalizes differences in taxation, fixed assets, and capital structure. Normalized ratios allow the valuation expert to compare similar apparel manufacturing businesses. In addition, the EBITDA multiple measures the ROI or return on investment a buyer can expect from the business.
REV Multiples for Apparel Manufacturing
Average REV Multiple range: 0.54x – 0.79x
In Peak Business Valuation’s data, apparel manufacturing businesses sell on average between 0.52x – 0.81x of revenue. Revenue multiples for apparel manufacturing are less common to rely on but for some transactions may be applicable. To calculate the implied value of the apparel manufacturing business, use the most recent 12-month period of revenue prior to the valuation date and multiply it by the applicable multiple. See the calculation below.
Revenue X Multiple = Value of the Business
To illustrate, an apparel manufacturer generates $1.6 million in revenue. Using a 0.79x REV multiple, the implied value of the apparel manufacturing business is $1,264,000.
$1,600,000 X 0.79x = $1,264,000
When valuing an apparel manufacturing business, the business appraiser at Peak Business Valuation will determine what multiples for an apparel manufacturing business are most applicable. Often small businesses transact on cash flow multiples – SDE and EBITDA multiples. Cash flow multiples consider expenses such as salaries, rent, COGS, and other expenses.
Summary
When reviewing valuation multiples for apparel manufacturing, know these numbers are averages. Many factors impact the apparel manufacturing business and the multiple that is most applicable. The business appraiser uses their expertise and experience to analyze the financial statements and key value drivers. They will also compare your apparel manufacturing business to similar companies. Using several valuation methods, the business appraiser at Peak Business Valuation will determine a fair market value for the apparel manufacturing business.
Peak Business Valuation, business appraiser, values apparel manufacturing businesses. We would love to answer any questions about valuing an apparel manufacturing business and multiples for apparel manufacturing. Whether you plan on buying an apparel manufacturing business or selling one, a business valuation is important. Get started with your business valuation for an apparel manufacturing business today! Schedule your free consultation below!
