EBITDA Multiple: How to Choose the Right One for Your Sector

The EBITDA multiple in two sentences

The EBITDA multiple is the number by which you multiply a company's EBITDA to get its enterprise value. EBITDA is operating profit before depreciation and amortisation: what the business generates before paying for past investments, interest and tax.

If a company generates €1m of EBITDA and its industry trades at 6x EBITDA, it is worth about €6m, debt included. The whole question is whether it is 5, 6 or 8 for your company: one point on the multiple moves the value by a full year of EBITDA.

What the multiple gives you, and what it does not

The EBITDA multiple gives an enterprise value: the value of the business, however it is financed. To get what belongs to the shareholders, the equity value, you then deduct net debt (financial debt less cash).

This is the first source of error: applying the multiple and forgetting the debt, or deducting it twice. The calculation always follows the same order:

1. EBITDA × multiple = enterprise value;
2. enterprise value − net debt = equity value.

Our guide to the 4 methods for valuing a business places the multiple among the other approaches, DCF included.

Where to find the EBITDA multiple for your industry

There is no official table. The multiple is rebuilt from two families of references, which you cross-check.

Listed companies in the same line of business

Listed companies publish their accounts and their share price every day. You can work out their multiple from them: enterprise value (market capitalisation plus net debt) divided by EBITDA. This is the freshest source and the easiest to verify.

Its limit: these companies are far larger than an SME, more diversified, and their shares can be sold in one click. Their multiples are therefore higher than those of an SME in the same line of business. The trading comparables model calculates these multiples for a sample of listed companies.

Sales of comparable companies

Recent transactions involving companies in the same industry and of a similar size are closer to your situation: these are unlisted companies, bought outright. The figures come from the trade press, transaction databases, published indices on mid-market sales and your adviser, who knows the deals in their market.

Their limit: few figures are public, they are sometimes several years old, and the price paid often includes synergies specific to the buyer. The transaction comparables model helps you sort them and derive a range.

Choosing the multiple step by step: a worked example

Take Durand Workshops, a fictional industrial SME: €8.2m of revenue, €1.1m of EBITDA and €0.6m of net debt. The samples below are fictional too; they are there to show the method.

Step 1: a sample of listed companies

Listed company	EV / EBITDA multiple
A	7.2
B	8.0
C	8.6
D	9.1
E	12.4

The average is 9.1, but it is pulled upwards by company E, which is growing much faster than the others. We use the median, the middle value, which is less sensitive to extreme cases: 8.6.

Step 2: apply a size and liquidity discount

An unlisted SME is worth less than a listed group in the same line of business: it depends on a few people, a few customers, and its shares are hard to resell. So we apply a discount. With a 30% discount:

8.6 × (1 − 0.30) = 6.0

The discount rate is a matter of judgement. It varies with the size gap and the strength of the SME; it is one of the points the buyer will negotiate.

Step 3: cross-check with transactions

Comparable sale	EV / EBITDA multiple
1	5.5
2	6.0
3	6.4
4	7.0
5	7.8

The median of the transactions is 6.4. The two approaches therefore give a zone of 6.0 to 6.4, the midpoint of which is 6.2.

Step 4: adjust for the company's particularities

Durand Workshops has margins in line with the industry, but two weaknesses: the owner-manager alone handles the relationship with the main customers, and the largest customer accounts for a quarter of revenue. We take off 0.3 points:

6.2 − 0.3 = 5.9

Step 5: move to the value

Step	Calculation	Result
Enterprise value	€1.1m × 5.9	€6.5m
Net debt	to deduct	− €0.6m
Equity value	6.5 − 0.6	€5.9m

The multiple is never presented on its own. With a range of 4.9 to 7.0, equity value runs from €4.8m (1.1 × 4.9 − 0.6) to €7.1m (1.1 × 7.0 − 0.6). Each tenth of a point on the multiple is worth €110k here.

What pushes your multiple up or down

Two companies in the same industry can sell at very different multiples. Buyers pay more for whatever makes future EBITDA safer or higher.

Criterion	Pushes the multiple up	Pushes the multiple down
Growth	Above the industry	Stable or declining business
Recurring revenue	Multi-year contracts, subscriptions	One-off orders
Customers	Diversified customer base	One customer above 20 to 30% of revenue
Team	Autonomous management	Everything rests on the owner
Margins	Higher than competitors	Lower, or very variable from year to year
Investment	Recent, well-maintained equipment	Machines to replace in the short term
Size	Higher EBITDA, more potential buyers	Very small company, few buyers

Size matters more than people think: in the same industry, a company generating €5m of EBITDA attracts more buyers, including investment funds, than one generating €500k. More buyers means a higher multiple.

The mistakes that skew the EBITDA multiple

• Applying the multiple to an unadjusted EBITDA. If the owner-manager pays themselves a salary far below or far above the market rate, or if the year contains an exceptional charge, EBITDA does not reflect normal profitability. Correct it before applying the multiple.
• Mixing definitions of EBITDA. Listed companies apply IFRS 16: their rents are taken out of EBITDA, which is inflated by the same amount. The accounts of a French SME include rents in operating costs. Applying a listed-company multiple to the EBITDA of an SME that rents its premises overstates the value, unless one or the other is corrected.
• Using the EBITDA of a record year. A buyer reasons on a sustainable level. If the latest year is exceptional, look at the average of two or three financial years.
• Comparing a historical multiple with a forward multiple. A multiple calculated on last year's EBITDA and one calculated on next year's expected EBITDA are not comparable. Both must cover the same period.
• Copying the multiple of a widely reported deal. A much-discussed sale at 12x EBITDA often includes synergies specific to one buyer, or a fast-growing company. It is not the industry norm.

Cross-checking the multiple with a DCF

The multiple tells you what the market pays today for similar companies. It says nothing about your own company's plans. The DCF, which discounts future cash flows, completes the picture: if the two methods give overlapping ranges, the common zone is the strongest one on which to open a discussion with a buyer.

Bridgesheet does this cross-check for you: from the name or SIREN number, the site reads the published accounts, applies the multiples of listed companies in the industry and a DCF, then displays a range explained in plain language. If the accounts are confidential, you can enter your own figures.