EBITDA Multiples

October 10, 2023

by a searcher from Humboldt State University in Vacaville, CA, USA

Hi everyone! We're new to the search and would love to hear your insights regarding a standard range of, or an acceptable EBITDA multiple.

For those of you who have made business acquisitions, what was the ending EBITDA multiple at close? For those who are still searching, are you strictly sticking to a predefined range?

All answers are greatly appreciated!

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Reply by a searcher
in Rindge, NH 03461, USA

2-3x is range I look for. If you are doing what most people are doing, which is financing the majority of the deal with debt (think SBA for 11%) then the cost of money/DSCR dictates what multiple you are able to pay. With the higher cost of money, the multiple has to be reduced to stay within desired/required DSCR. I like a 2.0 DSCR which means only half of your annual profits are committed to pay debt. With this DSCR, and cost of money at 11%, you can only pay about 3x or so. The higher multiples are ONLY doable in deals where PE firms or large buyers are paying with cash and are expecting high growth to create their return. High multiples do NOT work on smaller deals funded with debt.

Reply by an intermediary
from University of Missouri in Kansas City, MO, USA

EBITDA multiples in general vary by industry or type of business. There are also a vast number of other variables that can affect the multiple on any deal. Further, a general rule of thumb is that companies with a larger amount of adjusted EBITDA get a higher multiple than smaller companies. Free cash flow on a business can also affect the multiple a buyer will offer. A retail business or restaurant might get a 2X to 3X multiple. A Saas platform software business with exceptional reoccurring revenue might get a 10X to even 20X multiple.

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