Valuation Requirements:

Is a business valuation on the seller’s practice required for an acquisition loan?

SBA acquisition loan amounts over $250,000 require a third-party valuation on the seller’s practice. Almost all conventional loans will also require a valuation on the seller’s practice.

What are the typical multiples valuations are coming in at today?

Of course valuation companies frown on rule-of-thumb multiples because there are many quantitative and qualitative variables that impact the valuation. Two practices who have the same revenue can have significantly different net cash flow margins.

However, as an average, most of the valuations we see on the loan deals we handle, come in between 2 to 3 times recurring revenue and 1 times multiple (or less) for transactional commissions. Typically, the larger the revenue and NOI the higher the multiple. For example, puchasing $100K revenue might value in the low twos but $1M revenue might value closer to three or more.

EBITA Multiple Ranges These estimated multiple ranges based on internal experience and industry research. AdvisorBox is not a licensed business valuation firm and does not provide business valuations.

< $500 MILLION AUM

Range is about 4x to 6x EBITDA

$500M - $1B AUM

Range is about 5x to 9X BITDA

$1B - $5B AUM

Range is about 7x to 11x EBITDA

Recurring Revenue 2.25x - 3.5x

Recurring Revenue: Revenue generated on a regular basis without selling something again and again. Based on a management fee which is a percentage of assets managed or taking the ongoing trail compensation from annuities and mutual funds instead of upfront.

Fees

Annuity trails

12b-1s

Renewals

A share mutual fund trails*

SMA / Third-Party Managed

• Slightly More Premium Value

Semi-Recurring Revenue 0.50x - 1x

Semi-Recurring Revenue: A segment of transactional commissions which can be shown as consistent and predictable revenue and therefore has value.

Consistent = Over the last 3-5 years.

Predictable = Within 10% each year.

This might include more consistent commission business from stock and bonds, REITs, and UITs.

Commission Revenue 0 - 0.25x

Commission Revenue: A product is sold and a commission payment is received in full at the time, and no other ongoing compensation is earned from the transaction.

Stocks

Bonds

REITs

UITs

Life Insurance*

Fixed Annuities*

• Least Amount of Value

What if the valuation is less than the purchase price?

While conventional lenders have flexibility for this scenario, SBA lenders can’t lend for an acquisition amount that is higher than the valuation. If the buyer is willing to pay the purchase price that is higher than the valuation, the seller will have to seller finance the difference or the buyer would have to pay the difference.

When during the loan process is a valuation typically ordered?

The valuation isn’t typically ordered until the loan has been approved and a commitment letter generated. If a buyer or seller wish to have the bank order the valuation earlier, then lenders are typically happy to comply as long as a deposit covering the valuation cost has been made.

Who orders the valuation?

Conventional lenders will typically accept any recent business valuation created by known valuation firms in our industry niche. SBA lenders however, orders the valuation and do so using only the valuation firms who are on their SBA certified valuator vendor approval list.

Is it the buyer or the seller that typically pays for the valuation?

Generally, the buyer bears the costs of the bank’s valuation(s) requirements.

Which comes first, a valuation or loan pre-qualification?

From AdvisorLoans perspective, for buyers, financing pre-qualification should come first. For acquisitions under $5 million, we recommend using a multiple range as the ballpark to pre-flight getting qualified. If you can’t get financed, what’s the point of everything else?

Can the lender use a valuation that has already been completed?

This is often the case for conventional lenders when it is a recent valuation from a valuation firm the lender is comfortable with. SBA lenders want to order the valuation(s) from the SBA certified valuation firms that are on their approved vendor list.