I am familiar with the concept of multiples of sellers' cash flows or owners' benefits as a means to determine value. My question is: How is the multiple determined? With the scarcity of verifiable information on business sales, how does one determine an appropriate multiple for an industry, specifically, the property management industry?
If you spend anytime looking at businesses for sale, you'll see multiples that can be "all over the place". However,
That being said, there are some general parameters regarding the range of multiples. Many of these evolved from the concept of what a buyer can expect as a reasonable return on their investment and the level of risk to the new owner of each potential venture.
As an example,
On the other hand,
A typical Property Management business will likely have components of both of the examples noted above and will likely sell near the middle. However, you certainly want to look out for customer concentration issues, contract assignability, potential properties bringing the management function in house, the bidding process to maintain/acquire accounts, etc.
Although the comments herein outline an extremely wide range of potential multiples, the core strength and possible future threats will dictate a realistic figure. If you want to give yourself a frame to operate in then the more creative the deal structure (earnout, seller financing, specific contingencies materializing) the higher the multiple.
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