Typical Valuation Process

Valuation Multiple (Median Value)

• MVIC/Net Sales: 0.23
• MVIC/Gross Profit: 0.70
• MVIC/SDE: 1.86
• MVIC/EBITDA: 4.03

MVIC (Market Value of Invested Capital) = Also known as the selling price, the MVIC 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.
Net Sales = Annual Gross Sales, net of returns and discounts allowed, if any.
Gross Profit = Net Sales – Cost of Goods Sold
SDE = Operating Profit + Depreciation + Amortization + Owner’s Compensation
EBITDA = Operating Profit + Depreciation & Amortization

Source:  DealStats (formerly Pratt’s Stats), 2020 (Portland, OR:  Business Valuation Resources, LLC).

Industry Trends:

“Competition from home improvement stores and rising input costs have kept margins low. A strong housing market has boosted industry demand during the past five years. High competition and effects of the 2020 coronavirus have caused some companies to close. A rebounding commercial sector will help drive floor covering demand in the outlook. Home remodeling projects are expected to resume after the coronavirus passes. Due to growing competition, operator scale will become increasingly important. Competition from home improvement stores has limited floor covering stores’ growth.”

Source: IBISWorld Industry at a Glance

“‘2019 was a banner year for the carpet recycling industry in California,’ stated Bob Peoples, CARE executive director. ‘Rising recycling rates, exciting technological innovations such as chemical recycling, growing markets and improved efficiency led to our most optimistic outlook in years….’ While California’s overall materials recycling rate has been on the decline since 2014, the state’s carpet recycling rate is up 58 percentage in the same period, according to the recent California Carpet Stewardship Program 2019 Annual Report. The overall 2019 California post-consumer carpet recycling rate was 19 percent, up 27 percent from 2018. The national carpet recycling rate was 5 percent….

“The pandemic has affected everything. Carpet sales in the second quarter of 2020 were less that the first quarter, which not only impacts sales dollars but also the flow of post-consumer carpet materials, Peoples said. ‘And the commercial sector of carpet is looking into a recession because the future of the office plan is in question with so many people continuing to work from home,’ he noted, adding, the auto industry has stalled, which hits the supply chain for nylon. And the price of oil collapsed during the pandemic.”

Source: “Carpet Recycling Makes Progress in California” by Janet Herlihy, October 1, 2020, https://www.floorcoveringweekly.com/main/topnews/carpet-recycling-makes-progress-in-california-31528