This post was originally published on BeautyMatter.
We all see the headline numbers and marvel: Tatcha sells for 7x sales. Drunk Elephant is acquired for 8x sales. Olaplex goes public at over 50x sales. Wow, we are tempted to conclude, my brand must be worth gazillions!
I have this conversation with brand founders all too often. Rare Beauty Brands incubates, acquires, and scales high-potential brands, and I’ve explored partnerships with over 100 brands in the last year or so. We generally look at brands with under $10MM in revenue, where valuations are more art than science, and in the course of these conversations with many first-time sellers I’ve often seen a gap between their perceived value of a brand and its likely market value.
When discussing valuation, it’s one thing to confidently “anchor high” in the early stages of a negotiation, and it can be a very effective tactic. But if you cling to the highest possible end of the valuation range, and persist with an unrealistic sense of your brand’s worth, you probably won’t get very far.
So I figured it would be useful to share the infographic below, which attempts to bridge the gap between the art of placing a value on an early-stage brand and the oft-cited revenue or EBITDA multiples. It lays out the factors that go into assessing a brand’s worth and provides benchmarks for each factor and how each might contribute to a higher or lower multiple.
At the end of the day, these are just guidelines, but they are based on input from experienced sellers, investment bankers, and investors and represent a relatively accurate picture of the transactions that have been completed in the past several years.