Valuation Multiples for Lumber Wholesalers
The lumber wholesaling industry includes distributors of lumber, plywood, millwork, and other wood products to contractors, hardware stores, and home improvement stores. This industry includes over 10,000 businesses. These businesses generate nearly $96.4 billion in revenue. This industry is high in demand due to a booming housing market. However, the COVID-19 pandemic dramatically impacted the lumber wholesaling industry. The pandemic limited supply causing an increase in revenue for the industry. However, a limited supply will hinder growth long term. These fluctuations have caused an increase in the number of transactions for lumber wholesalers. Are you a lumber wholesaler thinking about buying or selling a business? The first step of either process is understanding the value of a lumber wholesale company. One tool a valuation analyst uses is valuation multiples for lumber wholesale.
Valuing a Lumber Wholesale Company
To understand the value of a lumber wholesale company, you will want to speak with a certified business appraiser or valuation expert. A valuation expert provides a detailed report about the value of a lumber wholesale company and factors that impact the value. A business valuation can help to feel confident when buying a lumber wholesale company. Additionally, it can help a seller determine a fair market value for a lumber wholesale company. You can get started today by scheduling a free consultation with Peak Business Valuation. We are happy to answer any questions you have about the value of a lumber wholesale company.
Below we give a brief overview of what average valuation multiples for lumber wholesalers look like. These numbers are only a guide. For more specific information about valuing a lumber wholesale company, be sure to schedule a free consultation! For more information, be sure to read Valuing a Lumber Wholesale Company and How to Value a Lumber Wholesale Business, as well as Value Drivers for a Lumber Wholesaler.
Valuation Multiples for a Lumber Wholesale Company
Disclaimer: These multiples are for educational purposes only. Multiples are based on companies with revenues between $1-$10 million. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation. 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 expert values a lumber wholesaler using a variety of methods. One of the ways is by using valuation multiples. Like a ratio, a valuation multiple compares two factors to each other. One of the most common multiples to value a lumber wholesale company is an SDE multiple. The SDE multiple compares the seller’s discretionary earnings with the implied value of the business. A valuation expert determines a range of multiples using similar lumber wholesalers that have recently sold on the open market. They then determine what is most applicable to your lumber wholesale company to get a range of value.
For instance, a lumber wholesale company has $700,000 in SDE. The valuation analyst applies a 3.13x SDE multiple. In this case, the lumber wholesale company is worth $2,191,000. ($700,000 times 3.13x) On the contrary, if a valuation expert applies a 2.62x multiple, the business is worth $1,834,000. ($700,000 times 2.62x)
Peak Business Valuation works with several individuals looking to buy, sell, or expand a lumber wholesale company. Here is a range of valuation multiples for lumber wholesalers that they typically transact between. Keep in mind, every lumber wholesale company is unique. As such, the valuation expert can determine a range of fair market value for your business. Below we discuss SDE, EBITDA, and REV valuation multiples for lumber wholesalers.
SDE Multiple
Average SDE Multiple range: 2.55x – 3.23x
According to our data, lumber wholesale companies transact on average between a 2.55x – 3.23x SDE multiple. A valuation expert will derive an implied value of a lumber wholesale company. They do this by applying the multiple by the most recent 12-month period of revenue. Below is the calculation of value using an SDE multiple.
SDE X Multiple = Value of the Business
For instance, a lumber wholesale company generates $580,000 in seller’s discretionary earnings. It transacts at a 2.90x SDE multiple. Using the calculation, the business is worth approximately $1,682,000.
$580,000 X 2.90x = $1,682,000
Seller’s discretionary earnings is a common cash flow multiple a valuation expert uses to value small businesses. It is very applicable when valuing a lumber wholesale company. The valuation expert calculates the business’s operating profit and adds back potential expenses a new owner may not incur. These expenses may include the owner’s compensation, the owner’s personal expenses, and other expenses such as non-recurring or non-related business items.
EBITDA Multiple
Average EBITDA Multiple range: 3.13x – 3.99x
The average EBITDA multiple a lumber wholesale company transacts at ranges between 3.13x – 3.99x. Applying this multiple to the EBITDA of the business drives an implied value. The calculation follows:
EBITDA X Multiple = Value of the Business
For example, a lumber wholesale company has an EBITDA of $285,000. It transacts at a 3.55x EBITDA multiple. Using the above calculation, the lumber wholesale company’s value is approximately $1,011,750.
$285,000 X 3.55x = $1,011,750
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.
REV Multiple
Average REV Multiple range: 0.21x – 0.36x
According to our data, lumber wholesale companies sell for an average of 0.21x – 0.36x revenue multiple. You can calculate the implied value of the business by multiplying the amount of revenue or sales a lumber wholesaler makes by the valuation multiple.
Revenue X Multiple = Value of the Business
For instance, a lumber wholesaler makes $2,000,000 in revenue. The valuation expert applies a 0.34x REV multiple. In this case, the business is worth approximately $680,000.
$2,000,000 X 0.34x = $680,000
In some cases, a valuation expert does not rely as much on a revenue multiple. This is due to a revenue multiple not considering the operations of the business. Cash flow multiples – SDE and EBITDA – consider expenses that impact the business. For instance, COGS, salaries, rent, among others. As such, the valuation analyst may more heavily rely on other multiples when determining the fair market value of a lumber wholesale company.
Summary
There are many factors that impact the value of the business and the multiple a valuation expert uses. Both impact the value of a lumber wholesale company. As a business appraiser, Peak Business Valuation, values lumber wholesale companies regularly. We would love to talk with you about the factors that may impact the value of your lumber wholesale company.
Peak Business Valuation, business appraiser, loves working with individuals to help them understand the value of a business. A business valuation can help you maximize the value of a lumber wholesale company prior to selling. Or, if you a buying a lumber wholesale company, a business appraisal can help you feel confident in the purchase price. Get started today by scheduling your free consultation with Peak Business Valuation!
