Fri 7th February 2014
In our last E-Tutorials to-date, we have looked the multiple of earnings method for assessing the value of an IT support / telecoms business. Now we will look at the second theoretical method of assessing the value.
Method #2: Multiple of Turnover
This valuation method is used for IT support and telecoms businesses where there is regular on-going revenue generated from an existing client base with service contracts or retainer agreements in place.
As the name suggests, the value of the business is simply calculated as a multiple of the annual turnover of the business with different multiples being applied to the various revenue streams.
The multiples used will depend on the attractiveness of the business, for example the duration of customer contracts, customer concentration, profitability and potential for growth. As a very rough guide the multipliers for a typical IT support and telecoms business are as follows:
|Revenue stream||Multiple of Turnover|
|IT / telecoms systems support contracts||0.8 to 1.2|
|Managed services (email, back-up etc) – provided in-house||0.8 to 1.2|
|Managed services (email, back-up etc) – outsourced||0.5 to 0.7|
|Consultancy and installation projects||0.5 to 0.7|
|Telecoms billing (Commission based)||0.5 to 0.7|
|Telecoms billing (Re-sales based)||0.8 to 1.2|
|Hardware and software re-sales||0.1 to 0.3|
Again, whilst buyers will tend to focus their valuation model on the past one or two years’ performance, it is important to produce a projection of the future two to three years’ revenues, particularly if the business is continuing to sign-up new customer service contracts which will deliver recurring revenue for some time to come. A tangible projection will enable us to justify and negotiate a deal value which reflects future earnings as well as the performance to-date.
Would you like us to assess the value of your IT support and telecoms business?
We would be delighted to offer you a free appraisal and indicative valuation of your business to give you guidance on its value and attractiveness to buyers, and whether now is the right time for you to sell. Our appraisal can take the form of either a face-to-face meeting or a telephone call, as you prefer.
Please contact us on 020 8090 9380, email [email protected], or complete the form below to arrange an appropriate time to review your exit strategy and the value of your business in confidence and without obligation.