Mergers & Acquisitions

Resources: M&A Talk Podcast

At M&A Talk we bring you exclusive interviews with experts in business sales, valuations, mergers and acquisitions and more. We talk to the most experienced professionals in the industry to uncover their secrets.

Working Capital for M&A Valuations by Gil Ostrick

Working Capital for M&A Valuations by Gil Ostrick

Gil Ostrick

Business Appraiser

Listen in as we discuss advanced topics related to valuing businesses in the middle market, including how working capital affects value, why EBITDA isn’t the best metric, why operational experience is important to valuing a company, and more. We take a deep dive into the world of working capital in M&A transactions with the ‘King of Working Capital.’ Learn the components of working capital and how to properly assess each component to value a business accurately. We also discuss important factors to consider when valuing a company, maximizing the value of your business, typical EBITDA multiples, and the relationship between risk and return.

Guest Profile

What makes my valuation practice unique is my 18 years experience in manufacturing and distribution companies. I performed due diligence for a $1.5 billion sales conglomerate doing operational, financial and valuation analysis to buy companies. Promoted to controller of a subsidiary where I turned a $1.5 million loss into a $700k profit the following year on $12 million in revenue. As corporate controller of a $300 million Amex-traded manufacture installed management reporting systems and controls saving the Company at least $10 million annually. Responsible for developing strategic plans to mitigate operating risk and measure returns on operating assets and income. Responsible for 10 operating divisions for all financial reporting, budgeting, and cash flow/profit improvement projects. Involved in all purchase or sales of business units and crisis management.

We clarify complexity. When it comes to M&A, sale of companies, or exit planning strategies we are creative, practical, focused and prepared to achieve a sustainable advantage and be in compliance with all sectors of the financial community. When we are engaged to help a company prepare for sale within a three-year period we not only spot problems we solve them with assistance with experts in areas other than finance or accounting/tax.

Our audience are business owners, attorneys, financial planners. Our niche is primarily manufacturers and distributors who need valuation, due diligence for proposed transactions. We value entities for exit planning strategies determining the best outcome.

We can help you get from here to there in sync with whatever your personal, financial, and business goals are. We can help with the decision of grow, sell or transition your business so you will not outlive your money.

Our goal is to understand your aspirations, frustrations, and business/personal goals. We see things that other firms don’t. We listen to what you want to achieve and help you achieve it.

Topics Covered

  •  Is operational experience important to valuing a company? Does the appraiser need to understand the operations of the business? [6:15]
  • How important is predictability of the revenue and EBITDA if the buyer is purchasing the business for strategic purposes? [7:05]
  • What are you really buying when you are buying a business? [7:45]
  • How long does it take an appraiser to learn about a company before they value the business? What aspects of the business does the appraiser need to learn about? [8:25]
  • What are current EBITDA multiples for manufacturing companies? [10:35]
  • Is EBITDA the best metric for valuing a business? [11:30]
  • Why is EBITDA so common if it isn’t the most accurate metric? [12:35]
  • What are EBITDA multiples for publicly held companies? [13:40]
  • What cash flow metrics do private equity firms use? [15:00]
  • What is adjusted EBITDA? [15:25]
  • Should discounted cash flow be used to value a business? [16:20]
  • What should you know about working capital when selling or valuing a company? [18:05]
  • Why is working capital important to consider when valuing a company? [19:55]
  • Why is working capital usually included in the price in an M&A transaction? [20:20]
  • What are the most common errors when calculating working capital? [20:40]
  • Do most buyers use the same method for calculating working capital? [21:55]
  • What is the difference between GAAP and Super-GAAP? [24:45]
  • How big can a post-closing working capital dispute be? [26:35]
  • How do you prevent post-closing working capital disputes? [29:00]
  • Should the seller involve their CPA in negotiating the working capital language in the purchase agreement? [29:35]
  • How long is a typical working capital clause in a purchase agreement? [30:20]
  • Is working capital defined in the LOI? [31:45]
  • How does a working capital true-up work? [32:05]
  • How easy is it for a buyer to manipulate working capital targets to their advantage? [32:35]
  • What is the number one thing you can do to increase the value of your business? [35:25]
  • How should you prepare your business for sale? Is there anything different you should do from running your company on a daily basis? [39:45]
  • What is a quality of earnings (QOE) analysis? [42:05]
  • What are the most common factors that affect the value of a business? [43:35]
  • What is the essence of business valuation from a buyer’s point of view? [45:50]
  • Is the EBITDA multiple essentially a judgement regarding the risk inherent in the business? [47:05]
  • What is the relationship between the risk and return? [48:25]
  • How can the seller maximize the value of a business by minimizing risks? [49:05]
  • How can the seller maximize the EBITDA multiple? [50:40]
  • How common are multiples exceeding 5.0 in the middle market? [52:50]
  • Why do businesses in certain industries sell at higher multiples? [53:35]

Learn More

A Roadmap to the Successful Sale of Your Business (152 pages)

A Roadmap to the Successful Sale of Your Business (152 pages)

You could spend a lifetime figuring out how to successfully sell your business and still end up confused or clueless. What if you can stop the guesswork and start taking action now?

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