April 2017 • Carol Collison
“There are lies, damned lies, and statistics” – Mark Twain
There is often talk in wine business circles about the “EBITDA multiple” describing the valuation of a company after an acquisition is announced. However, this multiple may be irrelevant with respect to what drives the final transaction value when negotiating an actual sale between two parties. Commonly a 10X EBITDA multiple is talked about as “average” in today’s market. So, if you own a winery with “Earnings Before Interest, Taxes, Depreciation and Amortization” equal to $1MM, your company will sell for $10MM, right? Maybe, but probably not. [i]
Photo credit: John Corcoran
So clearly in this data set, a standard earnings multiple was irrelevant. How is the value of a winery business determined during an actual sale process?
The most important factor is whether the brand/winery you are selling is EXACTLY what the buyer wants or needs for their strategic plans
So why all the talk about EBITDA multiples in describing winery transactions? To begin with, we all prefer to simplify complex situations. Furthermore, this is the valuation metric frequently referenced with respect to publicly traded companies, so it’s a more common and familiar metric across the whole economy. But the wine merger and acquisition market is largely made up of privately held companies selling to privately held companies. This is why a multiple of earnings is a less reliable predictor of what the price of a seller’s brand will be in an arms-length transaction when the money changes hands.