What It's Worth: Hotel Business Value: A BVR Special Report by UNKNOWN

Author:UNKNOWN
Language: eng
Format: azw3
Publisher: Business Valuation Resources
Published: 2016-06-27T04:00:00+00:00

Asset 82% Median selling price. As shown in Exhibit 3, the median selling price multiple for the 109 hotel transactions was 2.4 times revenue, 1.6 times seller’s discretionary earnings (SDE), and 8.3 times earnings before interest, taxes, depreciation, and amortization (EBITDA).

Exhibit 3. Hotels and Motels Selling Price Multiples

25.0 21.9

20.0 Median Average

15.0

10.0 8.3

5.0

2.4 2.5 1.6 3.6

0.0 Selling price/revenue Selling price/SDE Selling price/EBITDA SDE = seller’s discretionary earnings

EBITDA = earnings before interest, taxes, depreciation, and amortization Values over 100 have been eliminated.

Hotels and motels compared to all businesses. When compared to all other businesses, the median selling price for hotels and motels based on revenue is substantially higher than the median selling price for all other businesses (2.4 versus 0.6), as shown in Exhibit 4. However, the median selling price for hotels and motels based on SDE is actually a little lower than for other businesses (1.6 versus 2.3). When comparing selling price based on EBITDA, the median for hotels and motels is almost twice as much as for all other businesses (8.3 versus 4.3).

Exhibit 4. Median Selling Price Multiples

9.0 8.3

8.0 Hotels and Motels

7.0 All Other Businesses 6.0

5.0 4.3

4.0

3.0 2.4 2.3

1.6 2.0

1.0 0.6 0.0 Selling price/revenue Selling price/SDE Selling price/EBITDA

SDE = seller’s discretionary earnings

EBITDA = earnings before interest, taxes, depreciation, and amortization Values over 100 have been eliminated.

Average selling price multiples. When comparing the average selling price multiples of hotels and motels versus all other businesses, hotels and motels fare slightly better than other businesses when looking at selling price based on revenue and SDE, as shown in Exhibit 5. However, selling price based on EBITDA is more than 2.6 times higher than for other businesses (21.9 versus 8.4).

Exhibit 5. Average Selling Price Multiples

25.0 21.9

20.0 Hotels and Motels All Other Businesses

15.0

10.0 8.4

5.0 3.6 3.5 2.5 1.5

0.0 Selling price/revenue Selling price/SDE Selling price/EBITDA SDE = seller’s discretionary earnings

EBITDA = earnings before interest, taxes, depreciation, and amortization Values over 100 have been eliminated

Profit margins. Hotels and motels have significantly higher median profit margins than other businesses, according to data from Pratt’s Stats. In fact, the median gross profit margin at hotels and motels is 91% compared to 60% for other businesses. The operating profit margin for hotels and motels is 19% compared to 8.5% for all other businesses, and the net profit margin for hotels and motels is 11% compared to 7% for all other businesses (see Exhibit 6).

Exhibit 6. Median Profit Margins

100% 91.0% 90% 80%

70% 60.0%

60%

50%

40%

30%

20%

19.0% 8.5% 10%

0%

11.0% 7.0%

Gross profit margin Operating profit margin Net profit margin

Gross profit margin = gross profit/revenue Operating profit margin = operating profit/revenue Net profit margin = net income/revenue

Hotels and Motels All Other Businesses Hotels and motels also have higher operating profit margins when compared to all other busi - nesses, according to Pratt’s Stats(Exhibit 7). In fact, the median operating profit margin of 19% is more than double the operating profit margin for all other businesses.

The net profit margin for hotels and motels is also higher than for all other businesses. The median net profit margin of 11% is 1.

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