GROWTH THROUGH ACQUISITION
Valuation comes from multiplying EBITDA or SDE by an industry-specific multiple. EBITDA and SDE are not going to change significantly over the short term because they are based on past financial data.
A business can, however, increase its valuation exponentially by acquiring or developing more service/product lines or entire businesses, thereby increasing the valuation multiple of the business.
For example, a skincare spa may be valued at a specific industry multiple. However, if that skincare spa starts selling products online, additional revenue is developed from the online sales, thus justifying a higher valuation multiple.
Furthermore, if the spa’s online store sells a subscription service, an additional recurring revenue multiple (5X+) factors in. A single skincare spa can go from having one multiple to over seven (7X+) in a matter of months by making simple strategic improvements.