While it’s rare to hear about acquisitions in the business valuation space, a few recent transactions, including the acquisition of Reliant Business Valuation by Marshall & Stevens, have sparked a key question for many of us in the business valuation community: How much can we sell our firm for when it’s time to exit or retire?
Although specific financial details of private transactions like these are often not publicly disclosed, we’ll break down the common methodologies and metrics that influence the valuation of firms in the business valuation industry.
1. Revenue and EBITDA Multiples
Similar to accounting or consulting firms, one of the primary methods for determining the value of a business valuation firm is through multiples of revenue or EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).
Depending on the firm’s size, client base, and specialization (e.g., SBA valuations), multiples typically range from 1x to 2.5x revenue or 4x to 7x EBITDA. Firms with strong recurring revenue, such as Reliant Business Valuation, are likely to command higher multiples due to the stability of their client base (which includes banks and SBA lenders).
2. Client Base and Contracts
The depth and stability of a firm’s client relationships significantly influence its valuation. Reliant Business Valuation, for instance, had a strong foothold in SBA lending, working with over 150 banks. Long-term client relationships, especially with financial institutions, reduce revenue volatility and make the firm more attractive to potential buyers like Marshall & Stevens.
Similarly, valuation firms that handle litigation work and have strong relationships with law firms or private equity firms often attract interest from buyers. These firms benefit from their established reputation and the consistent flow of work generated by key partners, which can add value during an acquisition.
3. Service Offering Synergies
Buyers often assess the synergies between their existing services and the services offered by the target firm. For example, the acquisition of Reliant brought SBA expertise to Marshall & Stevens’ service portfolio, creating opportunities for cross-selling. The ability to offer clients a wider range of services, such as equipment appraisals or real estate appraisals, can drive up the value of the firm.
4. Geographic Expansion
Geographic reach can play a crucial role in determining the value of a business valuation firm. Reliant’s location near Princeton, New Jersey, combined with its national footprint, likely made it an attractive acquisition for Marshall & Stevens, who would gain broader access to financial institutions across the U.S. A firm with an established presence in key geographic markets can command a higher valuation, especially if the acquiring firm is seeking to expand its footprint.
5. Growth Potential
For niche firms like Reliant, growth potential within specialized markets (e.g., SBA valuations) significantly impacts the acquisition price. If a firm shows potential for growing its client base or expanding its service offerings, it can command a premium. Buyers are often willing to pay more for firms that demonstrate clear pathways for future growth and profitability.
6. Goodwill and Reputation
Goodwill—based on the firm’s reputation in the industry—is another intangible asset that adds value. Reliant’s reputation for expertise in SBA valuations, combined with its long-standing relationships with top financial institutions, likely contributed to its acquisition value. Buyers are interested not only in financial performance but also in a firm’s brand equity and client loyalty.
Additionally, a firm’s online presence can also play a role in valuation. Elements such as Google My Business reviews, website traffic, and search engine visibility provide insight into a firm’s reputation and market reach. A strong digital footprint can enhance a firm’s attractiveness to potential buyers.
Conclusion
In transactions like the acquisition of Reliant Business Valuation by Marshall & Stevens, the value is often determined using a combination of factors such as revenue and EBITDA multiples, client relationships, service synergies, geographic reach, and growth potential. Firms that specialize in high-demand services and maintain stable, recurring revenue streams—backed by strong relationships and a solid reputation—can command a significant premium.
Have you considered how these factors might apply to your own valuation practice? What are your thoughts on the valuation metrics involved in these acquisitions? Share your comments below, and let us know if you’ve begun planning your own exit strategy.
