Valuation Multiples for Auto Parts Wholesale
The auto parts wholesale industry is directly impacted by the current economic condition. With increasing interest rates, automobile sales are declining. However, the average automobile age is increasing which leads to increased demand for auto parts. Both factors – automobile sales and automobile age – impact auto parts wholesale businesses. In the United States, there are over 17,000 auto parts wholesalers. These businesses generate $251+ billion in revenue. With a low concentration in the auto parts wholesale industry, there are many business transactions of auto parts wholesale businesses. If you are looking to buy or sell an auto parts wholesale business, understanding the value is key. Obtaining a business valuation for the auto parts wholesale business will determine a fair market value. A business appraiser often uses valuation multiples for auto parts wholesaling when determining the value of an auto parts wholesale business.
Valuing an Auto Parts Wholesale Business
Determining the value of an auto parts wholesale business is a complex process. A business appraiser uses several valuation methods including the use of valuation multiples for auto parts wholesale. The business appraiser will also analyze the financial statements and key value drivers for auto parts wholesaling. Some of the key value drivers include the use of technology, delivery route optimization, and key partnerships. In addition, the valuation expert will analyze your auto parts wholesale business and compare it with similar auto parts wholesalers. For additional information, read Valuing an Auto Parts Wholesale Business, Value Drivers for Auto Parts Wholesale, and How to Value and Auto Parts Wholesale Business.
A business appraisal determines the value of an auto parts wholesale business. If you plan on selling an auto parts wholesale business, a business appraisal will help you understand how to maximize the value of an auto parts wholesale business. It will also help you determine a fair listing price. As a business seller, you don’t want to list your business too high and scare away potential buyers. But you also don’t want to list too low and leave money on the table. A business appraisal can help you understand the fair market value of the auto parts wholesale business.
If you are looking to buy an auto parts wholesale business, a business appraisal is key to negotiating a fair purchase price. A business valuation report details the fair market value as well as the strengths and weaknesses of the auto parts wholesale business. Knowing this can help you determine a fair purchase price as well as help you feel confident in the purchase of the business.
Peak Business Valuation provides business appraisals for auto parts wholesale businesses across the country. If you are thinking about buying or selling an auto parts wholesale business, start by obtaining a business valuation. Peak is here to help you! We are happy to answer your questions about valuing an auto parts wholesale business. Schedule your free consultation today!
Valuation Multiples for Auto Parts Wholesaling
The following diagram shows average valuation multiples for auto parts wholesale. It includes REV, SDE, and EBITDA multiples for auto parts wholesale. The below numbers are averages and should only be used as a guide. For specific information about your auto parts wholesaling business, schedule a free consultation. Peak Business Valuation, business appraiser is happy to assist!
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 commonly uses valuation multiples for auto parts wholesale when determining the value of an auto parts wholesale business. Using valuation multiples is just one common business valuation approach a business appraiser may use when valuing a business. A valuation multiple is a ratio – it compares two factors to each other. For instance, a common market multiple in business valuation is the SDE multiple. SDE stands for seller’s discretionary earnings.
The SDE multiple compares the seller’s discretionary earnings with the implied value of the business. When using multiples for auto parts wholesaling, the valuation expert will compare your business to similar auto parts wholesaling businesses. Using several valuation methods, the business valuation expert will determine a range of value for your auto parts wholesaling business.
For example, an auto parts wholesale business makes $423,000 in seller’s discretionary earnings. The business appraiser determines a 2.68x multiple is applicable. In this case, the auto parts wholesale business has an implied value of $1,133,640. ($423,000 times 2.68x) Whereas, if a 3.03x SDE multiple is applicable, the business’s implied value is $1,281,690. ($423,000 times 3.03x)
As a business appraiser, Peak Business Valuation values auto parts wholesaling businesses across the nation. If you are looking to buy, sell, or expand an auto parts wholesale business, schedule your free consultation.
SDE Multiples for Auto Parts Wholesaling
Average SDE Multiple range: 2.36x – 3.39x
In Peak Business Valuation’s database, auto parts wholesaling businesses sell on average between a 2.36x – 3.39x SDE multiple. To calculate the implied value, the business appraiser will use the following equation. Determine the seller’s discretionary earnings and multiply it by the applicable SDE multiple for the auto parts wholesaling business.
SDE X Multiple = Value of the Business
For instance, the seller’s discretionary earnings of the auto parts wholesale business are $377,000. It transacts at a 2.49x SDE multiple. In this example, the auto parts wholesaling business’s implied value is $938,730.
$377,000 X 2.49x = $938,730
Small businesses such as auto parts wholesalers commonly transact on a seller’s discretionary earnings multiple. To determine the seller’s discretionary earnings, do the following. Take the company’s operating profit and add-back any expenses a new owner may not incur. Some of the common add-backs to a business valuation include a fair owner’s salary, any personal expenses run through the business, as well as any non-recurring or non-related business expenses. For applicable SDE multiples for your auto parts wholesaling business, schedule a free consultation below.
EBITDA Multiples for Auto Parts Wholesaling
Average EBITDA Multiple range: 3.61x – 4.42x
According to our data, the average EBITDA multiples for auto parts wholesaling range between 3.61x – 4.42x. To determine the implied value of the auto parts wholesaling business, multiply EBITDA by the applicable multiple. See the calculation below.
EBITDA X Multiple = Value of the Business
To illustrate, an auto parts wholesaler has an EBITDA of $333,000. It transacts on a 3.79x EBITDA multiple. Using the above equation, the value of the auto parts wholesaling business is approximately $1,262,070.
$333,000 X 3.79x = $1,262,070
The EBITDA multiple is another common cash flow multiple. It measures the ROI or return on investment an individual can expect to make from the business. The business appraiser may prefer the EBITDA multiple because it normalizes differences in capital structure, fixed assets, and taxation. Normalized ratios allow the business appraiser to compare the subject business to similar businesses. In addition, normalized ratios can more accurately represent the future earnings a buyer can expect from the business.
REV Multiples for Auto Parts Wholesaling
Average REV Multiple range: 0.23x – 1.00x
Last, according to our data, the average revenue multiples for auto parts wholesaling fall between 0.23x – 1.00x of revenue. To calculate the implied value of the business, use the most recent 12-month period of revenue and multiply it by the multiple. The calculation is as follows:
Revenue X Multiple = Value of the Business
For example, an auto parts wholesaling business generates $4.3 million in revenue. The business valuation expert determines a 0.29x REV multiple is appropriate. Using the above calculation, the auto parts wholesaling business has an implied value of $1,247,000.
$4,300,000 X 0.29x = $1,247,000
The business appraiser will determine what multiples for auto parts wholesale are appropriate for your business and business transaction. Every scenario is different. As such, the valuation expert will look at each valuation method and valuation multiple to determine what is most applicable. Often the business appraiser will use several valuation methods to determine a range of value for the auto parts wholesaling business. Cash flow multiples – SDE and EBITDA – are common for small businesses to transact on. This is because they consider expenses such as COGS, salaries, rent, and other factors that impact cash flow.
Summary
When reviewing market multiples for auto parts wholesale, remember these numbers are just a guide. During the valuation process, the business appraiser will review your company’s financial statements and analyze key value drivers. They will then determine the appropriate multiples to use to determine a fair market value of the auto parts wholesaling business.
Our business appraisers at Peak Business Valuation would love to talk with you more about valuing an auto parts wholesaling business. We are happy to answer any questions you have about obtaining a business valuation for an auto parts wholesaling business. We are also happy to explain valuation multiples for auto parts wholesaling. To start your business valuation, schedule a free consultation using the link below.
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