Divestopedia Explains NTM EBITDAComputing the NTM EBITDA requires a seller to prepare a financial forecast. When forecasting, it is best to provide various scenarios and estimate NTM EBITDA as a range say from base to best. The assumptions that go into the calculation should be well supported and allow the buyer to conduct sensitivity analysis on them.
The buyer will estimate the multiple it is paying on NTM EBITDA to assess the reasonability of the purchase price. For example, if the buyer estimates the enterprise value (EV) at $50 million for a target that is doing $5M of TTM EBITDA, this would result in a multiple of 10X. This multiple may be unreasonable in the industry that the target operates in. However, the target may have just introduced a high margin new product that is projected to double EBITDA in the next twelve months. This may justify the buyer's purchase price as it would represent 5X NTM EBITDA, which may be more in line with comparables.
- Private Equity Deal Sourcing Strategies in 2023
- Flirting with a Single Buyer for Your Business
- 5 Core Tenets of Exit Planning
- Choosing Between Strategic Buyers or Private Equity
- Lessons Learned from Negative Buyer Feedback
- Neutralizing the Due Diligence Grind