When looking at an opportunity that obviously got some benefit from COVID, how do you think about discounting their 2020 EBITDA figures? Some opportunities I'm looking at have literally 10x'ed their EBITDA in 2020 and I have no idea what type of multiple to assign to it or how much to haircut it by. Curious to hear how others think about it.
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Typically during DD, you'd find out which are one-time enhancements to EBITDA and the forward-adjusted figure.
Just do a PV of Covid-related cash flows and add that on top of whatever normalized EBITDA * desired multiple
That doesn’t make any sense
Yes it does. Consider you have two EBITDAs:
* COVID-related EBITDA
* Normal course of business EBITDA
You want to take the COVID-related EBITDA stream and determine the present value. Then for the normal course business you value on a multiple or however you would.
just bid the book
Depends how the business was doing pre-COVID. If it was growing nicely beforehand, we usually forecast 2021 largely off 2019 (maybe give some credit for 2020 demand depending on the business itself), which usually means 2021 comps negatively against last year...but 2022 and beyond grows from there.
If it was a flat to declining business before COVID, we usually don't end up bidding. We never just take a multiple against a 2020 figure.
I dealt with this on the sell-side. We identified the key metric that was reducing expenditures (visits/patients), looked at what that metric would look like in a normal year and calculated the $ value of the difference.
Essentially think you would have to go much more in-depth than just the EBITDA figure (into detail that's likely not in the CIM) to understand what line items & metrics were helped because of COVID and then normalize those based on growth/expenditure in a regular year.
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