19. Rough Valuation of an International Company in the US

So you are an international entrepreneur who has put immense effort into making your company successful. You are proud of your accomplishments. What’s not to like; you have stature, cash flow, things are stable and life is good.

You feel a bit burnt out. “What would I do in retirement?” The thought gets you excited as you go to bed at night. Maybe pursue a side project? Enjoy care-free vacations without thinking about payroll? Or perhaps you are a serial entrepreneur and have some world changing idea that you want to pursue next.

Selling is not easy though. It is not just the valuation and cold hard cash about to invade your IBAN. What will the buyer do to your legacy? Your employees?

Perhaps you don’t want to sell per se but want to compete with the best and create the most value in the best market in the world, that of the United States of America. Your legacy may be to go out at the top.

Today I want to talk about a particular valuation exercise about profitable stable international companies being Americanized. Before continuing though, you should read my valuation treatise first. Things may make more sense. Let’s start with our hypothetical company.

You are an automotive parts manufacturer in Turkey (has some competitive advantages) and made $40m revenue in 2023, 30% (and some to the US, let’s say) of revenue were exports, and your EBITDA was $8m (20%) (these are top notch numbers by the way). Sure, revenue took a bit of hit during COVID but things are stable and good now. Maybe you are thinking about listing some of your shares at Borsa Istanbul since you are in the top 500.

USA has the most liquid capital markets and the prices there are considered relatively efficient given the large number of buyers and sellers. So let’s compare you to your public American sister because that’s what you’d aspire to be when you grow up. Let’s keep this simple and super rough (I am only spending 30 mins here) as we are only illustrating main and indicative things here (normally this exercise takes a few weeks, and the due diligence another 2-3 months):

I go to this simple website and select Auto Parts in industry. Towards the middle of the page I see these companies ranging from market cap of $60m to $200m.

Motorcar Parts of America, Inc. manufactures, remanufactures, and distributes heavy-duty truck, industrial, marine, and agricultural application replacement parts in the United States. The company offers rotating electrical products, including alternators and starters; wheel hub assemblies and bearings; and brake-related products comprising brake calipers, brake boosters, brake rotors, brake pads, and brake master cylinders. That’s close enough, and it is the most valuable here. So let’s start with them.

MPAA has a Market Cap of $193.28M, and an Enterprise Value $409.44M (tells me tons of debt and not much cash). Its EV/EBITDA valuation multiple is 5.7x ($57m EBITDA at 14% margins). I look at others just to get a sense. Strattec has 4.7x. Superior is at 5.6x. Before looking further, I anchor this industry around 4-6x after spending 10 minutes. So far so good.

What does this mean to you? First you are a private company - not easy to buy and sell shares, and your financials aren’t audited etc etc. Let’s shave off some valuation because of that: 3.5-5.5x. That’s called Public Premium.

Then you are in Turkey. Laws are different, regulations are different, so let’s be kind and not take too much off (only 10%) and we are down to 3-5x. I don’t know what to call this. I suppose in Turkey it is called coğrafya kaderdir (geography is destiny). One could use PPP, and other metrics to come up with a transparent conversions I suppose. Take a look at the Big Mac Index. There is a difference. How much, I can’t really say (calculation of the Turkish GDP is not accurate in my mind, but that’s another story for another time).

Anyways. Since you are the most exciting company in this segment with higher margins, stable customers, you’d be bought at the top of the range, 5x$8m = $40m USD. $40m in the bank, though, is not bad.

How would someone Americanize you?

1. Bring some more institutionalization and clean up the story with re-domiciliation and US brand. Perhaps identify some operational efficiencies, some tax arbitrage, etc. Easy driver.

2. Get more customers for you in the US. Try to grow from $40m revenue to, say $50m revenue. Harder driver, but doable.

The better question is why would someone do this?

With a growth story, acclimation in the largest and best market in the world, premium brand, then the company is now looking at (7× $10m ebitda =) $70m listing at NASDAQ or acquisition = $30m value creation in, say, 2-3 years.

Should you do this, and almost double your value? Of course you should if you can. If you cannot, then accept 75% cash ($30m), keep 25% equity in the business ($10m) as the largest shareholder and chairperson of the board. And get another $17.5 after a year or two with the accolades of going IPO in the US while someone else figures out this complete Americanization package for you. Best of all worlds. And one last time, this is a super rough method that is probably 50% wrong. Better than nothing for the initial foray and you should do it for yourself anyway - takes 30 minutes.

Happy February, and ping me if being Americanized is interesting for you. I got some crazy and free ideas that I know will work for you.