Provided by: Jennifer Kirschenbaum, Esq.
June 22, 2023
Question:
Hi Jennifer,
I'm evaluating private equity offers. I have my financial team in place, but no one can seem to agree on the practice's EBITDA. How can I know what the practice is worth and how to structure?
Appreciate your advice.
Dr. L
Answer:
What is my EBITDA? Sounds like a simple question. By definition, should be easy to calculate. Why such a mess in so many deals? The "add backs". Oh, the "add backs"! Normalizing salaries - how much for salaries - how much should I keep? What to give up? What about the next turn? Very tough questions, and the answers really depend on your priorities, the deal you are cutting, your control post-close, your risk appetite and the tides of the day. Each deal and each seller is different. A reality that occurs far too often is time and expense wasted in purgatory arguing over EBITDA / multiple. We can usually get ahead and solve through open dialogue to bridge the gaps.
One of the biggest problems I see in deals is the financial team selling themselves as qualified and experienced are oftentimes anything but and may in fact be working against your interest (perhaps, not intentionally). So many sellers have multiple team members - a broker, a banker, an accountant, and/or all 3, as on tap for their deal. Each "experienced professional" with an opinion. My recommendation on EBITDA - Buyer has a number they want to pay, you have a number you want to receive - let's get there through transparency and conversation, and land where you are happy or acceptably unhappy with the total. The longer EBITDA is in question, the more worn down you may become with deal fatigue and more likely to accept a lower purchase price or less advantageous structure.
So, yes, you need to call BEFORE you sign your LOI. Also, let's strategize on who to add to your financial team - there may be no need to pay multiple fees.
