Sale price of an SME: how much is a 20-employee company worth?

The criteria that make the price

Two companies of the same size can show very different economic performance, and therefore prices that have nothing in common. Five criteria explain most of the gap.

Profitability, before turnover. It is the result that sells, not the volume of activity. A highly profitable company with modest turnover is valued better than a company twice its size with thin margins.

The sector. Technology, software and healthcare benefit from higher multiples. Traditional or highly cyclical sectors are penalised, as are those whose growth is structurally flat.

Recurrence and concentration. A well-filled order book is reassuring. A customer accounting for more than 20% of turnover drives a discount, sometimes a heavy one.

Assets and organisation. Owned premises and equipment strengthen the value. A company that depends on its owner-manager for everything, on the other hand, is worth only a fraction of what it earns.

The market context. Interest rates, investor appetite, the number of active buyers: the environment moves prices independently of the company's performance.

The valuation methods

The EBITDA multiple is the dominant benchmark for SMEs. A sector coefficient is applied to operating profit before depreciation, then adjusted for net debt and cash. It is the method used by almost all professional buyers.

The turnover multiple is cruder and reserved for very small structures or certain sectors. To be used as a consistency check, never as the main method.

The asset-based method calculates the net value of the assets. It suits companies holding real assets, property, land or inventory, and makes little sense elsewhere.

Discounted cash flow is the most rigorous in theory. In practice, it relies on five-year growth assumptions that few SMEs can seriously substantiate.

Whatever the method, two adjustments change the result more than the choice of coefficient. The owner-manager's remuneration, to be brought back to the market cost of a salaried manager, and the non-recurring or personal expenses lodged in the accounts. A restated and documented EBITDA can be defended; an asserted EBITDA gets negotiated down.

One last point, often discovered too late: enterprise value is not the price of the shares. Net debt is deducted from it and working capital is adjusted, which explains most of the gaps between the amount announced and the amount actually received.

Orders of magnitude

For an SME of around twenty employees, depending on profitability and sector, the prices we see most often fall into these three zones.

What moves the multiple

For the same profitability, the multiple applied moves according to four elements: dependence on the owner-manager, recurrence of turnover, quality of financial information, and the presence of a management team able to operate without the seller.

These are precisely the four points on which a business owner can act in the eighteen months before a sale. It is the best return available on the market: a few months of work for one or two points of multiple. The checklist for the last 24 months.

Price is not everything

A group may offer a high price but attach a restructuring to its offer. An individual buyer may offer less but take over the company as a going concern.

The payment terms, cash, deferred or indexed to results, weigh as much as the headline amount. A high price paid partly as a conditional earn-out is often worth less, in cash actually received, than a lower offer paid at closing.