We talk alot about Multiples of Revenue & EBITDA when it comes to an M&A deal. In this episode we are unpacking how we use them, why they are important, and how buyers & sellers can align when it comes to deal multiples.

1. What is a multiple?
2. Why are multiples used in M&A deals?
3. How is a multiple calculated? Does it include items like cash harvest or employee agreements?
4. Based on different categories, different sub-industries in tech-enabled services will warrant different multiple ranges. What are some of those categories and ranges?   For example: Staffing companies, resellers, custom app dev, CSPs, MSPs, cybersecurity, generative AI
5. How do other items, like size, geography, vertical market concentration in clients, impact a multiple? How do non-financial factors like culture impact a multiple?
6. How do Revenue and EBITDA multiples interact? We’ve seen firms with high profit margins result in deals that are 2-3X revenue.
7. If someone hears a multiple, it feels like they hear either the highest number if they are trying to sell or the lowest if they are trying to buy. How do you explain the nuances to a buyer or seller?
8. If multiples are more of a gut check on the proper ranges of a deal, how often are M&A enterprise values tied directly to a multiple of EBITDA?
9. How important is it to get the proper deal comparisons if multiples become a method of comparing two firms?
10. If a deal is based on a multiple of EBITDA, how do buyers and sellers agree what is in or out of adjusted EBTIDA?
11. What are examples of firms that traded well outside of an industry norm for a multiple?

EPISODE SUMMARY:

• Multiples, such as a multiple of EBITDA, are commonly used in M&A deals as a simple way to gauge the value of a company. However, they are not the sole determinant of a company's valuation.
• Adjustments to EBITDA, known as "add backs", can be made to account for one-time expenses or other factors that will not continue post-transaction. The agreed-upon adjusted EBITDA is a critical factor in determining the multiple.
• Many factors beyond just the EBITDA multiple impact the final enterprise value in a deal, including strategic fit, cultural fit, and buyer synergies. The multiple is more of a planning tool than a definitive valuation.
• Higher profitability tends to correlate with higher multiples, while lower profitability may not support a revenue multiple above 1x. Finding truly comparable companies can be challenging.
• Deals sometimes trade outside of typical multiple ranges due to strong strategic fit or other unique factors, highlighting that multiples are not the only consideration in valuation.

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