Deferred Sales Commissions Excluded from EBITDA

A deal I'm looking at is for a company that relies heavily on paying certain lead generation players to acquire new customers. Using fictional numbers, let's assume they generate about $50 million in EBITDA but they pay $30mm year in referral fees to these lead generators annually.. and in turn try to convert those leads into customers. Though the avg customer lifespan is around ~1 year, this company amortizes a portion of the $30mm in referral fees over a 3 year period, which overstates EBITDA..

Should I be backing out the ~$30mm in fees that were paid to get to an Adj. EBITDA figure of $20 million instead of the $50 million? My thought being these are routinely occurring expenses necessary to run the business.

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Comments (2)

Jun 18, 2017

Depends if you want to do a cash EBITDA. Though I'd take the $30M and capitalize it over the one year. Otherwise, you're exponentially understating your EBITDA YoY. I'd add back change in capitalized fee's on the BS. though keep in mind PE shops will probably take this as a recurring expense regardless of how it's amortized.

Examples of this are capitalized salaries. Take development salaries of say 300K amort over 3yrs. 100K per year though PE shops will see Intangibles went up 200K and will add -200K to your EBITDA.

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Best Response
Jun 19, 2017

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