The EBITDA multiple (Enterprise Value / EBITDA) is currently one of the most widely used methods for estimating the value of a company in a sale or acquisition.
The principle is simple: apply a multiple observed in comparable transactions to the company’s EBITDA.
When a business owner says they sold their company for “6 x EBITDA,” M&A professionals immediately have a good sense of the valuation range.
But behind this apparent simplicity lies a more complex financial reality:
- EBITDA is almost always adjusted
- the multiple depends heavily on the company’s profile
- the price received by shareholders can differ significantly from the simple “EBITDA × multiple” calculation, particularly due to financial debt and cash.
To fully understand this multiple, it is important to first understand its two components: Enterprise Value and EBITDA.
1) What is enterprise value?
Enterprise Value (EV) represents the value of the business itself, regardless of how the company is financed.
It can be expressed simply as:
EV = Equity Value + Financial Debt – Cash
Financial debt mainly includes bank loans, certain credit facilities and financial lease commitments. Cash refers to the liquid funds available in the company at the time of the transaction, as well as certain cash-like items such as security deposits or short-term financial investments.
In practical terms, when a buyer acquires a company:
- they pay the shareholders for their shares
- they assume or repay the financial debt
- but they also gain access to the available cash.
Enterprise value therefore represents the true economic cost of acquiring the business.
In practice, enterprise value is usually discussed first, before determining the equity price based on debt, cash, and other balance sheet items.
Why start with enterprise value?
Because it is independent of the financing structure.
Two companies with similar activities and profitability will have the same enterprise value, but a different equity value depending on their debt and cash on hand.
This is precisely what makes the EV/EBITDA multiple comparable across companies.
2) What is EBITDA?
EBITDA stands for:
Earnings Before Interest, Taxes, Depreciation, and Amortization
It measures the company’s operating profit before interest, taxes, depreciation, and amortization.
It can also be derived from net income:
EBITDA = Net Income + Taxes + Interest + Depreciation and Amortization
This metric is consistent with enterprise value because it measures performance before returns to lenders and shareholders.
Why exclude interest?
Interest reflects the cost of debt financing and depends on the financing structure. Two identical companies financed differently can report very different net income figures. Excluding interest helps isolate operating performance and provides a measure consistent with enterprise value.
Why exclude taxes?
Taxes are calculated on profit that includes interest expenses. Once interest is removed, taxes also lose part of their economic relevance in the comparison. Tax rates also vary across jurisdictions and group structures.
Why exclude depreciation and amortization?
Depreciation and amortization reflect past investments recorded in the financial statements. They can vary significantly between companies depending on investment history and accounting policies. Since the cash outflow occurred when the investment was made, excluding these charges allows the analysis to focus on the operating performance of the period. The investments required to maintain the business are assessed separately, both in the overall analysis and in the valuation multiple ultimately applied.
⚠️ EBITDA is not cash flow
EBITDA measures operating profitability but not the actual cash generated.
It does not account for:
- investments required to sustain the business
- changes in working capital
- financial expenses.
A company may therefore report high EBITDA while generating little cash.
3) Adjustments to EBITDA
In M&A, the EBITDA used for valuation is almost always an adjusted EBITDA.
The goal is to reflect the company’s recurring profitability by eliminating one-off items and certain discretionary decisions made by the owner-manager.
The most common adjustments include:
Owner compensation: If the owner-manager’s compensation is above or below market levels, the difference is adjusted to reflect a market-level salary. This is one of the most common adjustments in small and mid-sized companies.
Owner-related benefits and expenses: Certain expenses incurred by the company may reflect the owner’s personal choices (company cars, travel, etc.) and may be adjusted if they do not reflect normal operations.
Rent: When real estate is owned by an entity affiliated with the owner, the rent may be adjusted to market rates. If the company occupies its own premises rent-free, a notional rent is often applied to properly measure the business’s profitability (the value of the real estate is then assessed separately).
Finance lease expenses: Expenses related to finance lease contracts reduce EBITDA, even though the equipment involved could also have been financed through bank debt. For comparability purposes, these expenses are typically excluded from EBITDA, with the remaining lease obligations treated as financial debt.
Non-recurring expenses: Certain one-off expenses, such as a legal dispute or an exceptional provision, may be adjusted if they do not reflect recurring performance.
Non-recurring income: Conversely, exceptional income, such as a one-off subsidy or the sale of an asset, is generally excluded.
📌 The financial implications of adjustments
A €100,000 difference in adjusted EBITDA represents €600,000 in value at a 6x multiple.
These adjustments are therefore often among the most technical and most debated aspects of a negotiation.
4) Factors that influence the multiple
Two companies with the same EBITDA can have very different valuations. The multiple depends in particular on the industry, the size of the company, certain company-specific characteristics, and the context in which the sale takes place.
The industry
Some sectors require little recurring investment. In these sectors, EBITDA more closely reflects the cash generated, which often justifies higher multiples. More capital-intensive sectors generally command lower multiples. The growth prospects specific to each industry, as well as their sensitivity to economic conditions, also play an important role.
Company size
Larger companies often command higher multiples. They are generally perceived as more resilient, less dependent on a single client or key employee, and attract a larger pool of potential buyers.
Company-specific factors
Beyond industry and size, several characteristics specific to the company can drive the multiple higher:
- Low dependence on the owner-manager: an autonomous management team and a solid organizational structure reassure buyers about the continuity of operations after the sale.
- Strong growth prospects: buyers are generally willing to pay more for future potential.
- Recurring revenue and business visibility: long-term contracts, subscriptions, automatic renewals, or a strong order backlog.
- Stable and robust margins, reflecting good cost control and a strong market position.
- Diversified customer base: a broad and balanced customer base reduces commercial risk and reassures buyers.
Conversely, the higher the perceived level of risk, the lower the multiple
High dependence on the owner-manager, a small number of key customers, reliance on a single supplier, or a highly cyclical business may lead buyers to apply a lower multiple.
Transaction context
The type of buyer can also play an important role. A strategic acquirer capable of generating synergies may accept a higher multiple than a financial buyer whose financing capacity relies primarily on debt.
The level of competition among buyers during the sale process also matters. When several buyers are involved, competition can drive valuations higher.
5) What is the EBITDA multiple for an SME?
In SMEs, observed multiples often range between 4× and 8× EBITDA, with significant variations depending on the sector, the company’s size, and the overall quality of the business.
For reference, the data below comes from the “2025 M&A Monitor” study conducted by Vlerick Business School, which is based on a survey of M&A professionals active in Belgium.
| Sector | Average EV/EBITDA Multiple |
| Technology | 9.1 |
| Pharmaceutical industry | 8.5 |
| Healthcare | 8.0 |
| Energy and utilities | 7.2 |
| Business services | 6.7 |
| Entertainment and media | 6.3 |
| Chemicals | 6.2 |
| Consumer goods | 6.1 |
| Industrial | 5.7 |
| Real estate | 5.7 |
| Retail | 5.6 |
| Transportation and logistics | 5.5 |
| Construction | 4.8 |
Valuation levels for SMEs in Luxembourg and France are broadly comparable.
These figures provide an indication of valuation ranges and should be interpreted with caution. Some publications report higher multiples, but these may reflect valuations calculated before certain adjustments or reconstructed from partial information (definition of debt, EBITDA used, reference period, adjustments applied, working capital adjustments or potential earn-outs). These differences explain the gap with multiples actually observed in transactions.
Another important factor is the role of bank financing in acquisitions. Banks typically assess the company’s repayment capacity over a period of 5 to 7 years, which often places a natural limit on the multiples that buyers are able to offer.
6) From Enterprise Value to Share Price
Enterprise value does not directly correspond to what shareholders ultimately receive.
It represents the value of the business independently of its financing. The value of the shares is obtained after taking into account the company’s financial debt and cash.
By rearranging the enterprise value formula, we obtain:
Equity value = Enterprise value – Financial debt + Cash
This formula gives the equity value. In practice, however, the actual price paid is often adjusted during negotiations.
One of the most common adjustments relates to working capital. During a sale, the parties generally define a normalized working capital level. If the working capital observed at the time of the sale is below this level, the price may be adjusted downward; if it is above, upward.
Other factors may also be discussed separately and reduce the final price, for example:
- short-term investments required to maintain operations
- tax or social security liabilities related to prior periods that fall outside normal working capital items
- certain off-balance-sheet liabilities, such as remaining payments on finance leases.
Conversely, certain non-operating assets may increase the price, such as a building owned by the company or certain security deposits.
Simplified example – amounts in €
Initial data
| Revenue | 8,000,000 |
| Subsidies | 10,000 |
| Other operating income | 90,000 |
| Purchases and external expenses | -4,900,000 |
| Personnel | -2,400,000 |
| Reported EBITDA (unadjusted) | 800,000 |
| Depreciation and amortization | -50,000 |
| Interest | -30,000 |
| Pre-tax income | 720,000 |
| Tax | -180,000 |
| Net income | 540,000 |
EBITDA can be derived from net income:
EBITDA = Net income + Taxes + Interest + Depreciation and amortization
EBITDA = 540,000 + 180,000 + 30,000 + 50,000 = €800,000
Step 1 — Adjusting EBITDA
Following financial analysis, several adjustments can be identified to reflect the company’s normalized profitability. Some adjustments—such as those related to finance leases—may depend on the approach adopted and negotiations between the buyer and the seller.
| Accounting EBITDA (unadjusted) | 800,000 |
| (+) Owner compensation above market level | 100,000 |
| (+) Finance lease expenses | 60,000 |
| (+) Non-recurring expenses (training, marketing, litigation) | 50,000 |
| (-) Non-recurring revenue (subsidies) | -10,000 |
| Adjusted EBITDA | 1,000,000 |
This example illustrates the potential impact of adjustments.
A total adjustment of €200,000 to EBITDA represents €1,200,000 in additional value at a 6× multiple.
Step 2 — Applying the Multiple
Assume a multiple of 6× EBITDA is used.
EV = 1,000,000 × 6
Enterprise Value = €6,000,000
Step 3 — Calculating Equity Value
Equity value is derived from the enterprise value:
| Enterprise value | 6,000,000 |
| (–) Bank debt | -900,000 |
| (+) Available cash | 400,000 |
| (–) Remaining finance lease obligations | -300,000 |
| Equity value (100%) | 5,200,000 |
In this simplified example, the value of the shares therefore amounts to €5.2 million.
In practice, other adjustments may also be discussed during negotiations, affecting the final price, particularly regarding certain anticipated investments, certain liabilities to be assumed, or the level of working capital required at closing.
7) The Limitations of the EV/EBITDA Multiple
Despite its widespread use, the EV/EBITDA multiple has certain limitations.
It does not take into account:
- the investments required to sustain the business
- the cash tied up in financing the business (inventory, customer payment terms, etc.)
- the company’s actual ability to generate cash.
M&A professionals therefore often use other complementary approaches, including:
EV/EBIT Multiple: based on EBIT, which is EBITDA minus depreciation and amortization. It reflects the wear and tear on productive assets and is often used in industrial sectors.
EV/(EBITDA – Capex) Multiple: incorporates the investments required to maintain operations (capex) and therefore better reflects the company’s ability to generate cash.
EV/Free Cash Flow Multiple: compares enterprise value to the cash actually generated after investments and changes in working capital.
EV/Revenue Multiple: used when profitability is not yet stabilized or in high-growth sectors such as technology.
DCF Method: values the company by discounting expected future cash flows based on the required level of risk and return.
The EV/EBITDA multiple remains the benchmark in most transactions — a simple and widely used indicator for quickly comparing companies with different financial structures — while the other methods serve as a complement to refine the analysis of actual cash generation
What about multiples based on net income?
There are also multiples based directly on net income, such as the Price/Earnings (P/E) ratio, which relates the value of the shares to the company’s net income. These multiples are widely used to analyze publicly traded companies.
In SME transactions, however, they are generally less suitable. Net income depends directly on the company’s financing structure (level of debt and interest expenses), which can be significantly modified by the acquirer after the transaction.
This is why M&A professionals generally prefer multiples based on enterprise value, such as EV/EBITDA, which allow companies to be compared regardless of their financing structure.
In summary
The EBITDA multiple (EV/EBITDA) has become the benchmark in SME valuation because it allows for quick comparisons of companies regardless of their financing structure.
Valuing a company is never simply a matter of multiplying a number by a coefficient.
This involves, in particular:
- understanding the actual profitability of the business
- identifying appropriate EBITDA adjustments
- analyzing growth prospects, revenue recurrence, and margin strength
- identifying key risk factors: dependence on the owner-manager, customer concentration, etc.
- converting enterprise value into equity value
- structuring a process that identifies and creates competition among the most relevant buyers
AKCEAN supports you in valuing your company
An inaccurate valuation or insufficient preparation can significantly impact the final price and the amount the owner ultimately receives.
AKCEAN advises SME owners in Luxembourg, Belgium, and France with valuation analysis, preparing the sale documentation, identifying qualified buyers, and conducting negotiations.
