4 EBITDA Thresholds Of M&A Valuation Multiples

In the world of mid-market mergers and acquisitions, it's generally accepted that larger companies within a given industry usually sell for higher valuation multiples – normally expressed as a multiple of EBITDA (earnings before interest, taxes, depreciation and amortization). This is because larger companies have more market presence and tend to attract larger, better financed buyers. Greater liquidity (defined in terms of the number and quality of prospective buyers) generates higher valuation multiples.

While every situation is unique, there tend to be 4 EBITDA thresholds where valuation multiples increase. They are EBITDA levels of $2 million; $5 million; $10 million; and $20 million. Note that where referred to herein, EBITDA refers to "normalized EBITDA", after adjusting for non-recurring items and market rate salaries for shareholders and related parties.