The EBITDA multiple: useful, yet not a valuation method
Twice a year, Brookz publishes the Brookz Acquisition Barometer, which includes average EBITDA multiples per sector. For many accountants and financial advisors, this has become a trusted reference work: one glance and you have an indication of what a company in a particular industry is worth, right? Yet, that simplicity is precisely the risk. A sector average is not a valuation, and those who apply the multiple without corrections may provide a client with an incorrect perspective.
1. An average does not tell the whole story
The multiples in the Acquisition Barometer are based on actual transactions within a six-month period, per sector. This makes them valuable as a benchmark, but an average often hides a significant spread in transactions. Within a single sector, multiples for small, sole-proprietorship-style companies and larger, professionally managed SME enterprises can diverge widely. Consequently, the average says little about where a specific company belongs within that bandwidth.
2. Company size and risk carry significant weight
Smaller companies typically have a higher risk profile: greater dependence on the owner, less diversification in customers, and a more vulnerable organization. Buyers usually factor that risk into a lower price. A generic sector multiple does not take this into account, even though this is often the most critical correction for an SME valuation.
3. Growth and margins are not included
Two companies in the same sector with the same EBITDA level can have entirely different prospects. A company with a growing order book, strong competitive position, recurring revenue, and rising margins justifies a higher multiple than a company with stagnating turnover. The Barometer looks backward at completed deals; your client wants to know what their company, with its own growth trajectory, is worth.
4. Deal structure influences the outcome
Transaction prices are rarely pure. Earn-outs, vendor ratings, guarantees, and the way working capital is settled all influence the final purchase price. A published multiple does not reflect those specific agreements, meaning two seemingly comparable deals can still lead to very different multiples.
What can you do as an advisor?
Use the Brookz Acquisition Barometer as a starting point, not a destination. Combine the sector multiple with a thorough analysis of the specific risks, growth prospects, and normalizations of the company. Ideally, place this outcome alongside another substantiated method, such as a discounted cash flow calculation, to test whether the multiple approach yields a realistic result. This prevents your client from being surprised once a buyer presents their own, much more stringent calculation.
This is precisely where an opportunity lies for you as an accountant: you know your client’s figures, risks, and prospects better than anyone. By translating the sector multiple into a substantiated, company-specific valuation, you elevate your advisory role to a higher level.
Ultimately, a sound valuation requires more than just a sector multiple. Software can help to substantiate assumptions, compare different valuation methods, and make the process reproducible.
Would you like to see how that works? Then take a look at the business valuation software from ValuePartner.