How are Multiples Determined in an M&A Deal? Absent a transaction, TEV is often calculated by estimating multiples based on valuations of comparable publicly traded companies or similar private company transactions. Using this method, the TEV is calculated by taking a financial metric of the company’s annual revenues or EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) and applying a multiple. The most common method of determining TEV is known as the Market Approach. Total Enterprise Value (TEV) is the gross market value of a company and is synonymous with the transaction value of an M&A deal. In this post we will define these elements, explain their interaction and offer advice for those contemplating an M&A transaction. To estimate the cash flow of a sale transaction, it is critical to understand the fundamental elements of valuation, including enterprise and equity values, multiples and goodwill. Today’s post discusses the relationships between a company’s valuation, purchase price and the cash proceeds received from a sale.Īs shareholders consider selling a company, their primary financial goal should be to maximize the cash they receive over time for their investment. We are excited to share those experiences and insights in this new series, “M&A Essentials.” The series will offer a fundamental understanding of the concepts, issues and processes every business owner should be familiar with when considering and conducting the sale of a business. As advisors to business owners and shareholders of private companies, we have helped companies to navigate the process from beginning to end. Selling a business is a complex endeavor.
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