In a vending machine business, would you pay a higher multiple for leased machines or owned machines?

In a vending machine business, would you pay a higher multiple for leased machines or owned machines?

• A. Owned machines
• B. Leased machines
• C. Both the same
• D. It depends on tax rate.

Answer: (B)

In valuing a vending machine business, the way you finance or own the equipment directly affects capital intensity, cash flow stability, and risk, all of which drive the price multiple investors are willing to pay. Leased machines shift much of the capital burden and many of the ownership risks off the buyer and onto the lessor. You don’t have to tie up large sums of capital to purchase the fleet, and lease payments create predictable operating expenses that can be modeled as part of ongoing cash flows. Maintenance and service often come with the lease, and equipment upgrades can be scheduled as leases end, reducing the risk of obsolete machines and large future capital expenditures. Tax-wise, lease payments can be deducted as operating expenses, which can improve after-tax cash flow and support a higher valuation multiple. In contrast, owning machines requires a big upfront investment, ongoing capex for replacements and maintenance, and exposure to residual value risk if demand or technology changes. All of that tends to compress the multiple an acquirer is willing to pay. So leased machines typically justify a higher multiple.

In valuing a vending machine business, the way you finance or own the equipment directly affects capital intensity, cash flow stability, and risk, all of which drive the price multiple investors are willing to pay. Leased machines shift much of the capital burden and many of the ownership risks off the buyer and onto the lessor. You don’t have to tie up large sums of capital to purchase the fleet, and lease payments create predictable operating expenses that can be modeled as part of ongoing cash flows. Maintenance and service often come with the lease, and equipment upgrades can be scheduled as leases end, reducing the risk of obsolete machines and large future capital expenditures. Tax-wise, lease payments can be deducted as operating expenses, which can improve after-tax cash flow and support a higher valuation multiple. In contrast, owning machines requires a big upfront investment, ongoing capex for replacements and maintenance, and exposure to residual value risk if demand or technology changes. All of that tends to compress the multiple an acquirer is willing to pay. So leased machines typically justify a higher multiple.