Breakdown
How it works
Normalise EBITDA for owner compensation above market, one-off costs and non-recurring income. Apply a multiple from comparable transactions or listed peers to get enterprise value, then subtract net debt (and add surplus cash) for equity value. Small, owner-dependent businesses trade at 3–5×; scalable, recurring-revenue businesses at 8–12× or more.
Formula
Worked example
5m EBITDA + 0.3m adjustments = 5.3m × 8 = 42.4m EV − 6m debt = 36.4m equity (range 25.8m–47m at 6–10×).
Frequently asked questions
What multiple is right?
Depends on growth, margins, customer concentration and size. Look at recent deals in your sector and region; GCC private deals typically trade 1–2 turns below US/UK equivalents.
EBITDA or EBIT?
EBITDA for asset-light businesses; EBIT (or EBITDA − maintenance capex) for capital-intensive ones where depreciation is a real cost.
Why do buyers argue about adjustments?
Because every 100k of adjusted EBITDA is worth 800k at 8×. Document each adjustment and expect a quality-of-earnings review.