“Is the Multiplier just based on the management fees”?

Is the Multiplier just based on the management fees

We received a phone call from the Director of a medium-sized owners corporation management business who wanted a second opinion: 

  • She has already appointed a broker to help sell her business. Now, after some time, the broker returned to her with one offer and one offer only – and there some pressure being applied on her to take the offer. 
  • The offer in broad terms was for “3 times”. 

What the Director and business owner wanted to know: 

  1. Why was there a lack of interest in her strata business?
  2. What is the value of her business that she and her husband spent over a decade building?
  3. Is the offer a good and fair offer?
  4. Is the multiplier reasonable, and does it only apply to the management fees?
  5. What does she do from here? 

Our answers to her questions: 

  1. It’s quite astonishing – there should not be a lack of interest based on the business she described to us.  

We have a surplus of ready buyers with funds to invest, and our network of purchasers fits into 3 broad categories:  

  • Purchasers wanting to buy strata businesses ~1,000 LUMs;  
  • Purchasers wanting to buy strata businesses 8,000 to 10,000 LUMs; and 
  • Purchasers wanting to buy strata businesses greater than 20,000 LUMs. 

We know Strata, and our contacts have run across industry parallels and across the Eastern States. Some of whom are serious operators looking for market entry and/or growth. 

The other possible problem – the broker she hired was charging a pretty low commission percentage. We told her that if we had to speculate:  

  • It was probably a fast “in and out, get the deal done” for the broker as they probably feel lucky to get a listing (even if it’s an industry outside of the core area of competency).
  • At the outset, they probably threw around a number or range around that would seem acceptable to the vendor at the time.
  • They haven’t taken the time to gather the facts and information needed to understand the business. 
  • The end result / predicament was the byproduct of subpar marketing effort and focus. 
  • There are still risk factors to consider from here – i.e. we know of another vendor that spent $20k+ on legal costs only for a failed settlement. The prospective purchaser backed out due being was a strata novice and inability to obtain funding.  

    2. We would need a fair amount of more detailed information from her – both quantitative and qualitative.

    3. On the face of it –  it’s pretty average deal because the process more likely than not was not properly conducted.
    4. Please see the next blog:Hey Strata Industry – STOP talking about ‘multiples’ and ‘multipliers’ 
    5. We couldn’t advise on that as ultimately it was a decision for her, her husband, and their circumstances (and whether they were in a rush to sell).  

Selling your business is one of the most important and largest financial decisions you’ll make. Don’t risk it or chance it. The selling journey isn’t a process that takes weeks and there’s always quite a few matters along the way that needs to be worked through. 

Ready for a strategic downsizing of your OC portfolio or a complete exit? 

Start with a confidential discussion: david@stratabusinessbrokers.com.au  

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