Valuing businesses post-Covid has changed pretty dramatically really. There is no business that’s not been affected by it. Certainly within the sectors that we operate in. All businesses are down about 25% in value, purely based on numbers. We’ve done nothing for a quarter of the year, which means the business’ income has gone down for the first quarter of this financial year. Certainly from April to June, and the longer that goes on and the slower it takes for some of the companies to get back on top, that number will continue reducing. This means the valuation of a company keeps going down.
Pre-Covid numbers were dead straight forward, they’re a multiple of EBITDA which is standard in the industry and a common way of valuing the businesses. You take the multiples of EBITDA and you kind of align it to the asset value of the business, and you come up with a number that is generally accepted as a fair value and a fair price for the business.
What we’re seeing now and my genuine advice for anyone looking to sell, is do it sooner rather than later. It will take at least three years to recover and get back to the pre-Covid numbers for most companies. During that time, what you can expect to see is that the pre-Covid valuation, and let’s say it was good, it’s going to take most companies about three years to get back up there. The further along this goes we’ll be looking at figures from this year and we’ve lost half of the year. We’ll be valuing the business based on the sets of numbers throughout Covid, as that’s the new normal.
The sooner you’re looking to sell, the better as far as I’m concerned because you can still pretty heavily rely on last year’s figures. The multiples have dropped, there’s no doubt about that, but they won’t be going anywhere for the next few years. I’ve seen this before in the property business where people chase the market down, they’re still looking for this number way up here, but it’s moved and that’s it.
Covid’s caught everyone. You’re either going to sell, or you’re going to have to wait a long time to try and reinstate the same value that you might not even get back to. Any credible buyer like us is going to take into account last year’s numbers as pretty up to date. But, in six, nine, 12 months’ time, we’re going to take into account this years’ numbers, so it’s not going to get any better. When you fast-forward this, values are not going up in the short term. We would be in the same position if we were looking to sell our businesses, we’ve all been affected by it.