So UK Plc’s 40% stake in Eurostar is being sold to a British – Canadian consortium.
The headline number being bandied, certainly on the BBC this morning, is a little misleading as the £750,000,000 being bandied about relates to the sale of the shares plus money received from Eurostar for the redemption of preference shares held by the government.
But given that Eurostar was seen as a bit of a money pit a few years ago and has never reached the original customer forecasts of over 21m per year, the money received is probably a reasonable enough deal.
How do buyers and sellers arrive at such an eye watering valuation though?
There are many ways in which you can value a business and a lot is dependant on the industry, whether any brands are involved, what assets the business has (and what type of assets) and how indebted it is.
As a very general rule of thumb though, most businesses are sold on a multiple of their EBITDA – that is Earnings Before Interest Tax Depreciation and Amortisation with the amount of the multiple being the variable which is dependent on the type of business etc..
If you are thinking of investing in buying your own business, please dig into the valuation to find out how the valuers have arrived at their figures. Ask to see three years worth of accounts, make sure you take a look at the business assets yourself, question the value of any goodwill. Visit it. Ask to see any original business plan and ask why things mentioned in the original weren’t achieved, ask for previous budgets and forecasts so you can check achievements against the results seen in the accounts.
Kick the tyres as they say and check! Ask as many questions as you can think of as it is a massive investment to make as your business won’t just consume your time, in order to be a success you need to put your heart and soul into it too!