M&A buyers price companies on five things: recurring revenue, owner dependency, documented add-backs, customer concentration, and clean financials. Manufacturers with above-median margins sell at 7.2× versus 6.3× for lower-margin peers. One home-services company lifted its multiple from 3× to 4.5× through operational improvements, adding roughly $3 million in value.
What separates the $8 million company from the $14 million one? 5 things. 1, recurring revenue. Maintenance agreements, retainers, service contracts. How many do you have and what percent renew? Revenue that shows up without a sales call is worth more. 2, owner dependency. If you're the top salesperson, the estimator, and every key customer's first call, the buyer is buying you and you're leaving. They respond with a lower multiple or with an earnout you have to stay and earn. Three, add backs. A lot of privately held businesses have legitimate E E bit da adjustments. The question is whether each adjustment has support a quality of earnings firm will accept. A hundred and fifty thousand dollars of rejected add backs at seven times is more than a million dollars of price. Four, concentration. One customer. One technician, one supplier the business can't lose. Find those risks before a buyer does and have an answer. 5. Clean numbers. Monthly closes, financials that tie to your tax returns, and margin by line of business. Fast diligence means fewer surprises, and surprises after the letter of intent are where prices get cut. There's evidence of how much just one of these matters. In Tagnify's first-quarter data, manufacturers with above-median margins sold at a median of 7.2 times. Below median margin sold at 6.3. Same size range. Nearly a full turn. And I've watched this happen outside a spreadsheet. I worked with a home services company where better systems and operations helped move the multiple from roughly 3 times to 4.5 times. That represented about $3 million in value creation. Same basic business. Better company, better multiple.
