The EBITDA multiple is the most common way to value a mid-sized company. But the same profit can be worth four times or eight times, depending on size, sector and quality. How it works, and what is in the owner’s hands.
“What is my company worth?” is the first question almost every owner asks when thinking about a sale. The honest answer is: it depends on who buys, when and how. But there is one method almost every professional buyer uses as a starting point, and understanding it shows what the owner can do to increase value.
What the EBITDA multiple is
EBITDA is operating profit before interest, tax, depreciation and amortisation. It approximates the cash the business generates regardless of how it is financed. The multiple is the number of times that profit a buyer is willing to pay.
A company with one million euros of EBITDA, valued at five times, has an enterprise value of five million. Net debt — borrowings minus cash — is then deducted to reach the equity value, which is what the shareholder receives. A company with one million of bank debt and two hundred thousand of cash would, in this example, deliver four point two million to its owners.
Why size matters so much
Two companies in the same sector, one with half a million of EBITDA and the other with eight million, rarely sell at the same multiple. The larger one is almost always worth more per euro of profit: it depends less on one person, has more and more diversified customers, attracts more buyers (including private equity funds, which have minimum sizes) and is easier to finance with debt.
As an order of magnitude, in mid-market deals in Southern Europe one frequently sees:
- EBITDA below one million euros: multiples of around three to five times.
- Between one and five million: around four to seven times.
- Between five and ten million: around six to nine times, with more institutional buyers competing.
These ranges are indicative and move with the economic cycle, interest rates and sector. They help frame expectations, not value a specific company.
Sector changes the scale
Sectors with recurring revenue, high margins and low capital needs tend to trade above average: software and tech services on multi-year contracts, healthcare, private education, specialist distribution with own brands. Cyclical, capital-intensive or highly competitive sectors tend to trade below: construction, transport, generic retail, restaurants.
Hotels are a special case, combining property and operation, and are often valued in parallel on property yield and business EBITDA.
What pushes the multiple up
- Recurring or contracted revenue. Multi-year contracts, subscriptions, customers who buy every year.
- Customer diversification. No customer above fifteen to twenty per cent of sales.
- A management team that does not depend on the founder.
- Consistent growth. Three to five years of rising sales and margins are worth more than one exceptional year.
- Clean financial information. Audited accounts, personal costs separated, a normalised EBITDA the buyer can verify.
What pushes it down
Dependence on one customer or supplier, tax or employment contingencies, ageing equipment that will need investment, verbal contracts, and essential property the company does not own without a long lease. Many of these can be fixed in twelve to eighteen months — which is why pre-sale preparation almost always has the best return of the whole process.
The multiple is the starting point, not the answer
In practice, buyers cross-check the multiple against discounted cash flows, comparable transactions and asset values, and adjust for their own strategy. A trade buyer with synergies can pay more than a fund; a foreign investor who needs market entry can pay more than a local competitor. The way to the best price is to put several buyers in competition, discreetly and in an organised way.
For a first view of your company’s value, see how GestInvest approaches business valuation, or read about the sale process.
Frequently asked questions
What is normalised EBITDA?
EBITDA adjusted for costs and income that will not recur under a new owner: shareholder pay above or below market, personal expenses, one-off costs. It is what the multiple is applied to.
Does company debt reduce the price I receive?
Yes. The buyer pays the enterprise value and deducts net debt. A company with a lot of cash, by contrast, adds that cash to the price.
Can I use a listed company’s multiple as a reference?
With great caution. Listed companies are larger and more liquid, and usually trade at much higher multiples than private mid-sized companies.
