How to value a scrap metal business: a practical guide for owners.

Most scrap and auto yard owners we talk to have heard a number from somebody — a competitor, a broker, an industry friend. The number is almost always either too high or too low, and usually for the same reason: whoever produced it skipped one of the four things that actually drive a transaction price.

This is a practical guide to those four things, written for owners who are starting to think about a sale and want to understand the math before they sit down with anyone.

The starting point: normalized EBITDA

Nearly every scrap or auto yard sale is priced as a multiple of normalized EBITDA — earnings before interest, taxes, depreciation, and amortization, adjusted to reflect what a new owner would actually earn.

"Normalized" is doing a lot of work in that sentence. It is also where the most disagreement happens between sellers and buyers. The largest normalization adjustments we see, in roughly the order they affect price:

• Owner compensation. Most owners pay themselves whatever cash the business can support — sometimes $200K, sometimes $2M, often in some combination of W-2 salary, K-1 distributions, and personal expenses run through the business. A buyer normalizes this to the cost of replacing the owner with a hired general manager — typically $150K–$250K depending on the size of the yard. The difference between actual owner comp and market GM comp adds to EBITDA.
• Personal expenses. Vehicles, fuel, phone, travel, family on payroll who don't work full-time, country club dues, life insurance premiums. These are legitimate tax strategy for an owner-operated business, but a buyer will add them back to EBITDA at closing. Be ready to document them.
• Real estate rent. If you own the real estate personally (or in an SPE) and the yard pays you rent, the rent gets normalized to fair-market rent. If you own the real estate inside the operating entity and pay nothing, a buyer subtracts fair-market rent to reflect the true cost of operating the yard.
• Commodity-price volatility. Scrap is cyclical. A buyer looks at trailing 3 years of EBITDA and weights them — usually with the most recent year carrying more weight than the prior two, but adjusted for where the cycle is. A peak-pricing year is not the right basis for a multiple.
• Non-recurring items. Legal settlements, environmental remediation costs, one-time equipment write-offs, COVID payroll subsidies. These get removed in both directions.

The multiple: what the market actually pays

Multiples in the scrap and auto recycling trade have been compressed for decades by the cyclicality of the business and the limited universe of buyers. The ranges we typically see — and these are illustrative, not promises — look something like this:

• Sub-scale yards ($500K–$1.5M EBITDA): 3.0x – 4.5x normalized EBITDA. The buyer pool is mostly other regional yards; institutional capital generally does not show up here.
• Mid-market yards ($1.5M–$5M EBITDA): 4.0x – 6.0x. More buyers including private equity-backed roll-ups and strategic acquirers. Real estate handling matters a lot in this range.
• Larger platforms ($5M+ EBITDA, multi-location): 5.5x – 8.0x and sometimes higher for true platforms with mill relationships, downstream processing, or unusual asset characteristics.

Brokers tend to quote ranges 1–2 turns higher than what the market actually transacts at, because they are pitching you on a listing rather than telling you what your business will sell for. Multiples north of 7x for a $2M EBITDA yard are rare and usually carry an earnout or seller financing component that significantly reduces the certain part of the proceeds.

Real estate: the second pile of money

For most scrap and auto yards, the real estate is a meaningful — sometimes dominant — portion of the total transaction value. Three things determine how the real estate is handled:

• Who owns it. If the operating entity owns the real estate, it usually transfers in the deal at appraised fair value. If you personally own the real estate, a buyer either acquires it from you at appraised value or signs a long-term lease with you. Lease structures are common when the owner wants ongoing cash flow.
• How clean it is. A clean Phase I environmental report and (if needed) a clean Phase II is the difference between real estate trading at market value and trading at a 20–40% discount. We will write more on this in another post.
• How operationally critical it is. Yard real estate with the right zoning, the right access, the right utilities, and the right neighbors is genuinely hard to replace. That's reflected in price.

Working capital: the third pile of money

Almost every deal closes with a "target working capital" — an agreed level of receivables, inventory, and payables that comes with the business at no extra charge. Anything above that target, you keep. Anything below, you give back.

For yards, the working capital target is usually calculated as a trailing 12-month average. Sellers who normalize their working capital downward in the months before close — by collecting fast, paying slow, and running down inventory — capture more value at closing. This is legitimate and expected. Buyers do the math on it.

The fourth pile: equipment

Equipment value gets baked into either the EBITDA multiple (if you treat the business as a going concern) or the real estate (if some equipment is fixed to the property). The two errors we see most often:

• Double-counting: A seller wants to be paid 5x EBITDA and the depreciated book value of every piece of equipment. Buyers will not do both. Equipment is implicit in the going-concern value.
• Under-counting: A seller who has invested heavily in modern equipment in the last 2–3 years often gets credit for that in the multiple itself (the EBITDA reflects the productivity of the new equipment), but should also make sure the diligence team understands the replacement cycle is reset.

Putting it together: a simple example

Suppose you run a single-location scrap yard. Last year you reported $400K of pretax income, paid yourself $300K in salary plus another $150K in K-1 distributions, ran $80K of personal expenses through the business, and depreciated $200K of equipment. You own the real estate personally and the business pays you $120K/year of rent. Fair-market rent for the property would be $90K.

Reported pretax income: $400K. Add back depreciation: +$200K. EBITDA: $600K. Now normalize: add back owner comp above market GM ($300K + $150K + $80K = $530K total, less $200K market GM = +$330K). Subtract above-market rent (-$30K). Normalized EBITDA: $900K.

At a 4.0x multiple, the business is worth ~$3.6M. Add real estate at appraised value (let's say $1.8M). Add working capital above target (say $200K). Total at-close consideration: ~$5.6M.

That is a back-of-the-envelope, not a quote. The exact number depends on dozens of details. But it is a more useful starting point than "I heard yards are going for 6x" or "a broker told me $8M."

What to do before you talk to anyone

Three things are worth doing — quietly, on your own — before you start a serious conversation with any buyer:

• Get clean financials. Three years of P&L, balance sheet, and tax returns. If your books are messy, get a CPA to clean them up before any outside diligence. Sellers who present messy financials get discounted multiples.
• Understand your real estate. Get a recent appraisal if you don't have one. If you have any reason to think there is contamination, talk to an environmental attorney before a buyer's Phase II forces the conversation on their timeline rather than yours.
• Make a list of personal expenses. Be ready to document the personal expenses you'll want added back to EBITDA. Buyers will allow most of them — but only if you can substantiate them.

The most important thing

The number on the wire is the only number that matters. A 6x offer with a $1M earnout, 30% seller note at 4%, and a $500K escrow hold-back is not the same as a 4.5x all-cash offer at close — even if the headline numbers look similar.

When you evaluate any offer, look at certain cash at close, then everything else. The contingent parts often look better on paper than they perform in practice.

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