EBITDAC Valuation Methods During the Covid-19 Age and What It Means for M&A

Discusses latest trends and risks, together with possible methods and approaches. Looks at how professional buyers are tackling the challenge and driving shareholder value.

Many of you may have seen the coffee mug circulating on social media; EBITDAC, earnings before interest depreciation, amortization, and COVID-19! Brilliant, but also to a certain extent true. Increasingly we are seeing a change in valuation methods, where many potential sellers simply will not accept transactions based on their 2020 numbers, which were adversely affected due to the level of disruption.

Yet deals will still need to be done and perhaps more pressingly in economic slowdowns, where synergy and economies of scale driven by acquisitions become even more important. Therefore, we can see the EBITDAC ‘tag’ and ring-fencing the COVID-19 numbers may be appropriate, particularly in valuation methods for M&A. This is fair but there is, in fact, a broader question, why EBITDA in the first place?

EBITDA

Given there have been three pandemics in the last 102 years, with SARS a near-miss, it could be said another was inevitable. COVID-19 is, of course, a ‘game-changer’ as governments seek to protect lives and our healthcare systems, despite the economic costs. As virtualisation and technology support the challenges of social distancing, this has also made companies pause to consider what is truly essential for productivity. We will also see other impacts, for example perhaps data tracking of our locations. Consequently, there is no doubt that every business model is experiencing a game change in some way with the key to survival as we wrote in last weeks ‘Lead ahead building your strategy around productivity’.

The broader question, therefore, is should valuation methods be driven by the financial models such as EBITDA, or is the whole multiple of EBITDA valuation method flawed and actually, valuations should be measured by productivity and sustainability. To a certain extent, we already see this trend in SaaS valuation models, with profits being less relevant than growth margins, the market size, and recurring and retainable revenues. Why therefore is this not the sort of modelling being carried out in other sectors and valuations?

These are some of the questions we hope to answer in the webinar below.

Avondale believe the game-changer for advisors is to raise their own game – to ring-fence financial performance due to COVID-19 and to focus on the growth and synergistic opportunities of tomorrow. Where all parties look past the recent EBITDAC financials, focus on the real value attributes of the business, and be creative with deal structure. There is little doubt this will result in a more successful acquisition and a more productive game.

If you are interested in learning more about EBITDAC, you can read the accompanying article – ‘EBITDAC: Highly Effective Valuation Methods During Covid-19‘ – here.

Avondale are EME business advisors. Through our management consultancy, we support growth and scaling up. Through our M&A and corporate work, we secure investment and finance for EME businesses, help people buy and sell companies and enhance shareholder value. We recognise ambitious owners who require ambitious, specialist advisors.

If you would like to discuss any aspect of our services in confidence or would like some advice EBITDAC and Covid’s effect on your business, please call +44(0)20 7788 8250, fill in our Contact Form or email us directly on av@avondale.co.uk.