Hi guys:
This might be a stupid question, but I was wondering if anyone can tell me why financing EBITDA can be different from actual EBITDA please? What usually causes the difference? Why would financing EBITDA not be either LTM actual EBITDA or NTM EBITDA provided by management?
Thanks!
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One reason is that in any deal (especially when the seller is a PEG exiting a platform investment), the seller often tries to get credit for a larger earnings base with a series of EBITDA add-backs, run-rate adjustments, etc. At the time of the transaction, they are essentially trying to get credit for growth initiatives that they put in action and have not realized yet. Lot of IBs trying to pitch how they can sell the forward earnings base these days to get maximum value.
Thank you!
They’re all made up numbers anyways
If your company has consolidated subsidiaries of which it does not own 100% (it owns less than 100% but more than 50%), the EBITDA would be inflated given that it would consolidate the full earnings of the subsidiary. In this situation, the EBITDA used to provide financing would be adjusted downward.
For debt (you have a compliance certificate): 1) Lenders will allow you to add prospective synergies / cost saves fully 2) Typically you will run-rate acquisitions but (unless they are material) you won't run-rate out divestitures and no one cares 3) Certain relatively aggressive industry specific add-backs won't be allowed in the compliance cert. For example in certain salesforce driven industries you may subsidize ramping sales staff and add the comp subsidyback for marketing (i.e. CIM) ebitda. Lenders don't allow that
Generally from what i've seen financing ebitda is kind of in-line with sell-side ebitda (read: aggressive)
Also rule of thumb, financing ebitda is NEVER ntm. It can be run-rate (different from NTM). Run-rate would refer to acquisitions. I haven't covered saas so idk if contract wins are added typically.
Mgmt usually will stuff lots of crap in their adjustments to increase their EBIT DeeeAaaaa. That's why you need to hire those accountants to do QEs.
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