Multiple
A valuation metric expressing business value as a multiplier of earnings (EBITDA or SDE), commonly ranging from 2-6x for SMB acquisitions.
A multiple is a valuation metric that expresses a business's value as a multiplier of its earnings, typically EBITDA or SDE.
How Multiples Work
Enterprise Value = Earnings × Multiple
Example:
$1M EBITDA × 4.0x Multiple = $4M Enterprise Value
Factors Affecting Multiples
Higher Multiples (4-6x+)
- Recurring revenue models
- Strong growth trajectory
- Diversified customer base
- Defensible market position
- Professional management in place
Lower Multiples (2-3x)
- Owner-dependent operations
- Customer concentration
- Declining industry
- Limited growth potential
- Heavy capital requirements
Current Market Multiples (2026)
| Business Size | Typical Multiple |
|---|---|
| <$500K SDE | 2.0-3.0x |
| $500K-$1M SDE | 2.5-3.5x |
| $1M-$3M EBITDA | 3.5-5.0x |
| $3M-$5M EBITDA | 4.0-6.0x |
| >$5M EBITDA | 5.0-7.0x+ |
Multiple Expansion
Buyers create value through "multiple arbitrage":
- Acquire small business at 3-4x
- Grow to larger size
- Sell at 5-6x (larger business multiple)
This strategy drives search fund returns even without operational improvements.
Related Terms
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