We have invested heavily in physical equipment and inventory, but our modern earnings are driven by our proprietary service processes. The buyer wants to value us solely on an EBITDA multiple and ignore our hard assets. How do we negotiate a deal structure that reflects both our asset value and our cash flow?

Question

Tyler Smith · Accepted Answer

When a business has significant physical assets but is valued on a multiple of EBITDA, owners often feel they are giving away their equipment and inventory for free. To resolve this conflict, you must understand how different buyers view your balance sheet. Financial buyers typically view assets simply as the necessary tools required to generate your EBITDA, meaning they will not pay extra for them. To capture the value of both your assets and your cash flow, you must position your company to the right buyer. A strategic buyer who needs your capacity or specialized equipment can often justify a structure that values your assets at fair market value while paying a premium multiple for your earnings. Alternatively, you can negotiate a hybrid deal structure. For example, you can retain ownership of the real estate or specialized equipment and lease it back to the buyer, creating a recurring income stream for yourself while lowering their upfront acquisition cost. Use your V/TO® to clarify your long-term goals and determine whether retaining these assets fits your post-exit plan. Do not let a buyer use a generic EBITDA multiple to acquire valuable, liquid assets without proper compensation.