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.
- Considerations for Management Teams in Private Equity Buyouts
- Customer Communication in Mergers and Acquisitions
- How I Sold My Business: The Personal Touch Approach
- A Brick-and-Mortar Business Broker’s Intro to Ecommerce and SAAS
- Building Enterprise Value With Strategic Planning
- How I Sold My Business: The Painful Process of Negotiation