EBITDA Multiple

An EBITDA multiple expresses the company value as a multiple of EBITDA. If a company is valued at eight times its EBITDA, this is called a multiple of 8. Such factors allow a quick comparison of the valuation of similar companies.

Importantly, the multiple relates to enterprise value and not to the price paid for the shares: net financial debt and debt-like items must be deducted from the product of factor and EBITDA to arrive at the equity price actually payable. The level depends on several drivers, in particular size, growth, margin level, recurrence of revenue, dependence on individual customers or people, and sector. Larger, fast-growing or highly predictable businesses regularly command higher multiples than smaller or more volatile companies. The actual range is wide and moves with credit markets.

The reference figure matters too: the adjusted EBITDA of the last twelve months is normally used, less often the expected result for the current year, which can express the same price as a markedly different factor. That is precisely the metric's weakness: it is easy to communicate but hides both the quality of the underlying figure and the terms of the transaction. An important point for negotiation is that the same price produces entirely different factors depending on the reference figure: a price expressed on last year's reported result, on adjusted earnings for the last twelve months or on the current year's forecast can differ by several turns without any change in the amount paid. Factors quoted in market reports and conversations are therefore only usable when the reference figure is stated with them.