Valuation Multiples for Couriers and Local Delivery Companies
This article discusses valuing a courier and local delivery service company. The couriers and local delivery service industry comprises two main segments. The first includes couriers. Couriers perform delivery services between urban centers. They use a network of transportation systems. The second business segment is the local delivery service segment. This segment provides delivery services within a single urban area. Both of these segments usually provide next-day, or two-day delivery shipping services. The industry is a $115 billion dollar industry. The largest players by market share are FedEx, and the United Parcel Service (UPS). These Companies dominate more than 70% of the market.
The industry is currently growing and is anticipated to continue to grow. The industry’s growth has been expedited thanks to COVID-19. With the increase in online shopping and more people staying home more goods and products are being shipped and delivered to them. Many business owners or business seekers are looking to capitalize on the “hot market” for courier and local delivery service companies. Peak Business Valuation, business appraiser Utah, has recently seen an increase in the number of people looking to buy and sell local delivery service companies. Are you interested in understanding the value of a delivery service company? If so, schedule your free consultation!
Valuing a Courier and Local Delivery Service Company
Why can a business valuation help when you are selling a courier or local delivery service company? What about when you are buying a delivery service company?
A business valuation can help you understand the value of a courier or local delivery service business. Additionally, a business valuation can help you know what price to sell your business for. The same is true for buyers. A business valuation can help you be confident in the value of the local delivery service company you are looking to buy before you actually purchase it. If you are a buyer or a seller, a business valuation will give you the confidence and peace of mind you need!
The first step in buying or selling a business is to understand the value of the business. Get started today by scheduling a free consultation with Peak Business Valuation, business appraiser Utah. We receive questions all the time about how a business is valued. One of the most common questions is “How does a valuation expert determine the fair market value of a Company?”.
Valuation Multiples for a Courier and Local Delivery Service Company
A valuation expert uses a variety of methods and approaches when calculating the fair market value of a business. A common approach business appraisers use is the Market Approach. The Market Approach utilizes valuation multiples from comparable companies that have sold recently. These multiples are then applied to the business being valued. Here is a brief overview of what valuation multiples look like for the couriers and local delivery service industry. Keep in mind these numbers are only a guide. For a more extensive valuation and specific information about the value of a courier or local delivery service you are looking to buy or sell, schedule a free consultation call. Be sure to also check out our articles on Valuing a Courier and Local Delivery Service Company and Value Drivers for a Courier or Delivery Company.
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?
As previously mentioned, one of the methods to value a company is using market multiples. A valuation expert like Peak Business Valuation, business appraiser Utah, can help to explain market multiples more in-depth. A market or valuation multiple is like a ratio. A ratio compares two factors to each other, and a valuation multiple does just that. For example, one of the most reliable ratios in valuation is an EBITDA multiple. The EBITDA multiple compares the EBITDA of the business, with the implied value of the company. (EBITDA stands for earnings before interest, taxes, depreciation, and amortization.)
A valuation expert will use multiples from comparable companies. They then apply them to your local delivery company. In doing so, the expert determines a range of value for a courier or local delivery service company.
For example, a courier or local delivery service company has $150,000 in EBITDA. The valuation expert applies a 3.17x EBITDA multiple to the company’s EBITDA. The business would have an implied value of $475,000 ($150,000 times 3.17) On the contrary, a 4.25x multiple would imply the value of the company would be $637,500. ($150,000 times 4.25)
As a business appraiser, Peak Business Valuation works with dozens of individuals who are looking to buy, sell, or expand a courier and local delivery service company. Here is a range of valuation multiples that most local delivery service companies transact at. Every business is unique and as such the range of value can be significant. Below we discuss EBITDA, SDE, and REV multiples for a courier and local delivery service.
EBITDA Multiple
Average EBITDA Multiple Average: 3.48x – 4.05x
According to our data, most couriers and local delivery service companies transact between a 3.48x and 4.05x EBITDA multiple. To derive an implied value of your courier or local delivery service company, apply the EBITDA multiple to the most recent 12 months period of revenue. The calculation is as follows
EBITDA X Multiple = Value of the Business
For instance, a courier and local delivery service company generates $200,000 in EBITDA. It transacts at a 3.75x EBITDA multiple. Then, the business value is approximately $750,000.
$200,000 X 3.75x = $750,000
The EBITDA multiples for couriers and local delivery service companies are remarkably tight. This is due to the increased competition in the industry. The EBITDA multiple is generally the most reliable multiple when valuing a courier and local delivery service company. An EBITDA multiple measures a company’s return on investment (ROI). This multiple is preferred as it is normalized for differences in capital structure, taxation, and fixed assets. Normalized ratios allow for comparisons to similar businesses. Normalized ratios also more accurately represent the future earnings a buyer can expect from the business. Another appropriate multiple used when valuing a courier and local delivery service company is an SDE multiple.
SDE Multiple
Average SDE Multiple range: 2.76x – 3.32x
According to our data, most couriers and local delivery service companies transact between a 2.76x and 3.32x SDE multiple. To derive an implied value of a courier and local delivery service company, apply the SDE multiple by the most recent 12-month period of revenue. The calculation is as follows:
SDE X Multiple = Value of the Business
For instance, a local delivery service generates $255,000 in sellers’ discretionary earnings. It transacts at a 3.02x multiple. In this case, then the business value is worth approximately $770,100.
$255,000 X 3.02x = $770,100
Seller’s discretionary earnings is a common cash flow multiple used in valuing small business transactions. It is very applicable when valuing a courier and local delivery service company. It starts by calculating the company’s operating profit and adding back personal or discretionary expenses. These expenses may not be incurred by a new owner. Common examples include the owner’s compensation and non-recurring or non-related business items. The two cash flow multiples (SDE and EBITDA) are the standard multiples a valuation expert uses to value a courier and local delivery service company.
REV Multiple
Average REV Multiple range: 0.57x – 0.88x
According to our data, most couriers and local delivery service companies sell for an average revenue multiple between 0.57x and 0.88x. You can calculate the implied value of the business by multiplying the amount of revenue a company generates by the valuation multiple.
Revenue X Multiple = Value of the Business
For instance, a courier and local delivery service company makes $1,100,000 in revenue. It transacts at a 0.74x multiple. This means the business is worth approximately $814,000.
$1,100,000 X 0.74x = $814,000
Some industries trade almost explicitly on a revenue multiple. The courier and local delivery service industry does not regularly transact on a revenue multiple. A revenue multiple does not consider the operations of the business. However, we have recently seen an increase in the number of transactions based on a revenue multiple. The reason for this is the increasingly competitive nature of the industry. As the industry becomes more competitive, the cost structure across the industry begins to align more closely. As the cost structures of local delivery service companies align, a revenue multiple becomes more applicable. With this in mind, it is important to look at a revenue multiple in conjunction with cash flow multiples. Valuation experts will use several multiples to understand the value of a courier and local delivery service company.
Summary
Valuation multiples are a powerful tool when it comes to business valuation. It is important to keep in mind that there are many factors that may impact the value of a business. Although quick and simple to use, a multiple is not always the most comprehensive or precise way to value a courier and local delivery service company. As such, Peak Business Valuation, business appraiser Utah, would love to talk with you about the factors that may impact the value of a courier or local delivery service company.
Peak Business Valuation, business appraiser Utah, loves working with small business owners. We help them maximize the value of a courier or local delivery service company. We focus on providing valuable information and insight regardless of your situation. If you are looking to grow, sell, or buy a courier or local delivery service company, Peak Business Valuation is here to help! Peak works on valuations for courier and local delivery service companies almost weekly! As such, questions and queries are always welcome! Get started today by scheduling your free consultation below!
For more information about Courier and Local Delivery Service Companies, check out our other articles such as “Value Drivers for a Courier or Local Delivery Company.” As well as, “Valuing a Courier and Local Delivery Service Company.”
Schedule Your Free Consultation Today!
