how to manage expectations of sellers in covid times
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Many sellers are expecting to sell their companies based on ebitda from pre-covid times counting that buyers will benefit from a recovery. But how sure is the upside with all changes that occured soem of which will become permanent? what is fair when noone can future is more uncertain than in most times?
The sale of companies based on EBITDA from pre-covid periods can mislead investors as it does not depict the actual position of a firm. The EBITDA is crucial since it facilitates the comparison of company performance with its competitors in an industry. The formula determines operating profits as a percentage of the generated revenues within a given period. However, the pandemic has caused significant changes that pose uncertainties. Therefore, the future of companies is unclear as some face solvency and leverage issues from prolonged closure. Thus, using the pre-covid EBITDA will be misleading since the current EBITDA would better help determine future performance.
The issue post COVID-19 consumers have changed drastically, even if consumers behavior returns back to the expectations, it can be easily altered depending on any circumstances, especially in certain businesses such as food and cosmetics. So, it would be to look at both EBITDA’s and see the magnitude impact of the EBITDA post COVID-19
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