Glossary
EBITDA multiple
The ratio of a business's enterprise value to its EBITDA. If a business with normalised EBITDA of one unit is valued at six units of enterprise value, it has been valued at a multiple of six times EBITDA.
In plain English
A multiple is a shorthand. Rather than describing a valuation in absolute terms, people describe it as "so many times EBITDA". It allows businesses of different sizes to be compared, and it is how most offers for agencies are framed. The multiple is applied to normalised EBITDA to arrive at enterprise value, which is then adjusted to give the equity value shareholders receive.
What drives the multiple
The multiple reflects how confident a buyer is that the earnings will continue and grow, and how much the business is worth to that particular buyer. Factors include growth, revenue quality, client concentration, leadership depth, specialism, size, the buyer's strategic need and the state of the market. Two agencies with the same EBITDA can attract very different multiples.
Why quoted multiples need care
You will hear multiples quoted for "agencies like yours". They are rarely comparable without knowing what EBITDA figure they were applied to, how the deal was structured (a high multiple with a large earnout is a different thing from the same multiple in cash) and what the buyer's circumstances were. We do not quote sector multiples here; we discuss them with founders in the context of their own business.
Keeping the terms distinct
- EBITDA is the earnings measure.
- Normalised EBITDA is the adjusted measure a multiple is applied to.
- The multiple is the factor; on its own it tells you nothing without the other two.
Written by Motion Advisory Partners as general guidance, not a benchmark.