What is an EBITDA Multiple?
A valuation methodology that expresses company value as a multiple of its EBITDA. The most common way to value and compare private companies.
Key Takeaways
- •Enterprise Value = EBITDA × Multiple
- •Typical multiples range from 3-8x for most private businesses
- •Higher multiples for growth, size, recurring revenue, and lower risk
- •Always use comparable transactions to benchmark your multiple
EBITDA Multiple Definition
An EBITDA multiple (also called EV/EBITDA) is a valuation ratio that compares a company's enterprise value to its EBITDA. It answers: "How many years of current EBITDA would it take to equal the company's value?"
The Formula
or: Multiple = Enterprise Value / EBITDA
Example Calculation
EBITDA: $2,000,000
Multiple: 5.0x
Enterprise Value: $10,000,000
Typical EBITDA Multiples by Industry
Multiples vary significantly by industry, company size, and specific characteristics:
| Industry | Small ($1-5M) | Mid ($5-20M) | Drivers |
|---|---|---|---|
| SaaS / Software | 5-8x | 8-15x+ | Recurring revenue, growth rate |
| Professional Services | 3-5x | 5-7x | Client concentration, team |
| Manufacturing | 3-5x | 5-7x | Asset intensity, capex needs |
| Distribution | 3-4x | 4-6x | Customer relationships, margins |
| Healthcare Services | 5-7x | 7-10x | Regulatory, payer mix |
| E-commerce | 3-5x | 5-8x | Brand, growth, margins |
| Construction | 2-4x | 3-5x | Backlog, project risk |
Use Comparable Transactions
Industry averages are starting points only. The actual multiple for your business depends on specific characteristics. Find 5-10 comparable transactions with similar size, growth, and margins for better benchmarking. Factors like customer concentration and pricing strategy significantly impact multiples.
What Drives Higher Multiples?
Growth Rate
Growing 20%+ commands premium vs. flat growth. Buyers pay for future earnings growth built into the price.
Company Size
Larger companies get higher multiples due to lower risk, better management, and easier financing.
Recurring Revenue
Subscription or contract-based revenue is worth more than transactional revenue. Predictability reduces risk.
Margins
Higher EBITDA margins typically command higher multiples. 25% margins beat 15% margins at same revenue.
Multiple Premiums
- Low customer concentration (<20% from top customer)
- Strong management team willing to stay
- Recurring/contracted revenue streams
- Defensible market position or IP
- Clean financials and documentation
Multiple Discounts
- High customer concentration or key person risk
- Declining revenue or margins
- Heavy capital expenditure requirements
- Aggressive accounting or unclear financials
- Industry headwinds or regulatory risk
Enterprise Value vs. Equity Value
EBITDA multiples produce enterprise value, not what owners directly receive. To get equity value:
Example
| EBITDA | $2,000,000 |
| Multiple | 5.0x |
| Enterprise Value | $10,000,000 |
| Less: Debt | ($2,000,000) |
| Plus: Cash | $500,000 |
| Equity Value | $8,500,000 |
Using Multiples in Practice
- Start with Adjusted EBITDA: Use normalized EBITDA with owner add-backs, not GAAP EBITDA
- Find comparable transactions: Look for deals in your industry, size range, and growth profile
- Consider the market: Multiples fluctuate with interest rates, credit availability, and buyer demand
- Negotiate from reality: What a buyer will actually pay matters more than theoretical value
- Remember deal structure: Cash at close, earnouts, and seller notes affect real value
For a deeper dive into transaction preparation, see our guide on valuation methods.
Frequently Asked Questions
What's a good EBITDA multiple?
It depends on industry, size, growth, and quality of earnings. Small businesses typically trade at 3-5x. Mid-market companies at 5-8x. Large companies and high-growth businesses can command 10x+. SaaS companies often use ARR multiples instead. Compare to comparable transactions in your industry.
What's the difference between enterprise value and equity value?
Enterprise Value (EV) = Equity Value + Debt - Cash. When you hear 'valued at 5x EBITDA,' that's typically enterprise value. To get what shareholders actually receive, subtract debt and add cash. A company valued at 5x $2M EBITDA = $10M EV. If it has $3M debt and $500K cash, equity value is $7.5M.
Why do larger companies get higher multiples?
Larger companies have less key-person risk, more stable revenues, diversified customers, professional management, and are easier to finance. A $500K EBITDA business might sell at 3-4x while a $5M EBITDA business could command 6-8x. This 'size premium' is well-documented in transaction data.
How do I find comparable transaction multiples?
Sources include: PitchBook, DealStats, and BizBuySell for private transactions; SEC filings for public company acquisitions; industry associations; investment bankers and M&A advisors. Be careful with averages—specifics matter. Five comparable deals tell you more than industry averages.
Related Terms & Resources
EBITDA
Understanding the metric
SDE (Seller's Discretionary Earnings)
Alternative for small businesses
EBITDA Adjustment Worksheet
Document your add-backs
Fractional CFO for M&A
Help with transactions
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