What is the Meaning of EBPITD or SDE in NZ?

EBPITD stands for Earnings Before Proprietor’s (wages), Interest, Tax, and Depreciation. EBPITDA stands for the same thing plus Amortisation. New Zealand is moving to the American phrase Seller’s Discretionary Earnings (SDE).

EBPITD’s meaning depends on the source. In New Zealand a small business sales transaction database called BizStats defines EBPITD or SDE as
the earnings of the business before:
– proprietors income (salary, wages, director fees)
– interest
– taxes
– depreciation

How to use EBPITD or SDE?

EBPITD or SDE is used in the market approach in a method variously called Private Comparables (and other names).

Simply put you find similar businesses, calculate EBPITD (and other) ratios, and then multiply the subject company by the EBPITD ratio to calculate its value.

For example, five similar businesses have an average EBPITD ratio of 3.0. The subject company’s EBPITD is $200,000, therefore its business value is $200,000 * 3.0 = $600,000. 

It’s important to look at how many working owners (‘W/O’) there are in the BizStat results. It may be there are 2-3 working owners and that all their salary is included in EBPITD / SDE—requiring an adjustment to the data to rebase it to one working owner. Note that for recent data, the broker may have rebased the proprietor’s income to one working owner.

Working Owners is an example of why it’s important to know about the data source. Here’s some more information about EBPITD and BizStats.

More about EBPITD 

EBPITD came from an earlier version of the New Zealand private transaction database BizStats. 

BizStats was founded in 2000 by Clyth Macleod, the grandfather of business broking in NZ, and an early expert business valuer Don Sloan. It changed ownership a few years ago, and the new owner, Matt Stevenson, made some updates, one of which was to start using the American terminology SDE which stands for Sellers Discretionary Earnings. So now look for SDE not EBPITD in their reports.

BizStats has 11,000 transactions from business brokers. It uses the ANZIC categories and is focused on the ‘Main Street’ of businesses e.g. cafes, retail, and auto repair shops. 

Business brokers provide anonymised business sales data and in return they get free use of the BizStats.

As well as EBPITD / SDE and working owners, BizStats provides data on sales price, revenue, region, months to sell, GP%, lease months remaining, tangibles, stock, intangibles, and some ratios.

Sales Price is defined as total price at which the business was sold (Tangibles + Stock + Intangibles).

Cash, accounts receivable, loans receivable, inventory, real estate and all liabilities are typically excluded from the sale price. Sales are recorded as cash-free, debt-free. They are almost entirely asset, not share, sales. This is the equity value of the company. 

The values from BizStats data are based on transactions of a 100% ownership interest. By definition, this means that the ownership interest calculated is a control position. Therefore, if calculating a minority interest, a lack of control discount might be appropriate. A non-marketable discount is likely also applicable.