What is a package delivery business worth?
Based on data from Pratt’s Stats®, it depends on whether it is a FedEx delivery business or not!
Price to Sales Multiples
For recent transactions involving FedEx delivery businesses, the median MVIC price to Sales multiple was 0.95 with a coefficient of variation of 0.27.
For transactions in SIC Code 4215, the median MVIC price to Sales multiple was 0.71 with a coefficient of variation of 0.49.
Price to Discretionary Earnings Multiples
On the other hand, the FedEx businesses sold at a slightly lower multiple of discretionary earnings.
For the FedEx delivery businesses, the MVIC price to Discretionary Earnings multiple was 1.64 with a coefficient of variation 0.39.
For the SIC 4215 transactions, the MVIC price to Discretionary Earnings multiple was 1.94 with coefficient of variation 0.49.
See notes below for explanations of MVIC, discretionary earnings, and coefficient of variation.
What does it mean?
Why would the FedEx businesses sell at a higher multiple of sales, but a lower multiple of earnings?
It seems counterintuitive, but low-margin businesses often sell for higher multiples of earnings than do similar high-margin businesses. A well-run business without any “fat” might not give a buyer as much “upside” as a poorly run business. In this case, the FedEx independent contractor model provides some stability and operational efficiency, but it could also limit the ability of the self-employed operator to grow their business.
What is an MVIC Price?
MVIC (Market Value of Invested Capital) is the total consideration paid to the seller and includes any cash, notes and/or securities that were used as a form of payment plus any interest-bearing liabilities assumed by the buyer. The MVIC price includes the noncompete value and the assumption of interest-bearing liabilities and excludes (1) the real estate value and (2) any earnouts (because they have not yet been earned, and they may not be earned) and (3) the employment/consulting agreement values. In an Asset Sale, the assumption is that all or substantially all operating assets are transferred in the sale. The appraiser needs to use their experience and knowledge in the field and the buyer’s/seller’s knowledge and experience with their business to determine what is customarily transferred in an asset sale in that industry.
What are Discretionary Earnings?
Sellers’ discretionary earnings (SDE) are commonly used by business brokers in small-business transactions. Essentially SDE represents EBITDA (earnings before interest, taxes, depreciation, and amortization) plus owners’ compensation and any personal/discretionary expenses.
Coefficient of Variation in a Nutshell
The theory is that the valuation multiples with the lowest Coefficient of Variation are those with the least dispersion around their respective means and may be the better indicators of value. The value derived using these valuation multiples may be weighted more heavily than those with larger Coefficient of Variations.