Orlando Bravo's Hot Twitter Take
Is excess equity really that bad.....The man behind Thoma Bravo thinks so
Thanks for joining us again for another week of Atlasview Insights. If you’re back that means we must have done a decent job with the first week of bite-sized insights.
This week we wanted to share some M&A best practices as well as a spicy take from Orlando Bravo.
Weekly Musings: Adjusted EBITDA
Given that our team is constantly evaluating deals and speaking with management teams, we’re often presented with adjusted EBITDA figures. It’s always a back-and-forth battle with a seller to agree on what really constitutes an acceptable adjustment. We wanted to revisit an old blog article in which Jay breaks it down from a buyer’s and seller’s perspective.
Adjusted EBITDA Refresher
EBITDA (earnings before interest, taxes, amortization, and depreciation) is a short-cut metric for measuring how much cash earnings a business generates annually. Yet, making those 4 adjustments often isn’t enough to arrive at a business’s economic profits. There often needs to be further adjustments for any expense or revenue accounted for in EBITDA that is not considered to be “core” or essential to operating the business. Some examples are one-off events, personal expenses, and intercompany transactions.
Buyer Best Practices
It’s important to understand what is an acceptable adjustment as a seller will likely include as many as possible to improve their EBITDA. As a buyer it is critical to ask yourself “is this really non-core and or non-reoccurring to the operating business I am buying?”.
Seller Best Practices
As a seller, you know the business better than anyone else so you should know what adjustments make the most sense. On top of that, there are operational decisions that can be made to optimize your EBITDA (for example buying v.s. leasing equipment).
If you have any questions about EBITDA adjustments for your business, always feel free to reach out to us. Our team has access to some great resources for anyone that is looking to navigate this metric.
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Let’s Get In Touch
We look for the following characteristics in our partner companies:
Industry: Software and tech-enabled businesses
Size: Minimum $1m EBITDA or $5m ARR
Geography: The US & Canada
Business Profile: Sticky B2B customer base, Experienced management team
Whether you’re a business owner interested in working with us, or an intermediary with a deal to share, always feel free to reach out and get in touch with us!
Is Excess Equity Really That Bad?
The hottest private equity take of 2022 goes to (drum roll)……
We were waiting for this to be a thread but it seemed like Orlando didn’t feel the need to expand on his take much further. A few other investors were unforgiving of this one, especially:
We believe there are way more scenarios where too much debt can hurt a company compared to too much equity. That said, when there’s no “hard cost” on capital (like most forms of equity), it’s easy for management to forget that money costs money. Here’s a quick reminder from one of the greats:
Thanks for stopping by for another week of operational and investment insights from our team and fellow industry peers. We have all sorts of content lined up around topics like portfolio company management, deal sourcing, optimizing your business’s finances, and the inner workings of a private equity firm!