EV/EBITDA Multiple
The EV/EBITDA multiple is a company's enterprise value divided by its earnings before interest, tax, depreciation and amortisation — the number of years of operating cash earnings a buyer is paying for, before financing and accounting choices. It is the most used yardstick in private M&A because it compares businesses regardless of how they are funded or how they depreciate, and it is the multiple a fintech seller hears first.
- Also known as
- EV/EBITDA, Enterprise value to EBITDA, EBITDA multiple
- Used at
- valuation by comparables and precedents, the price in heads of terms ("8× normalised EBITDA"), and the covenants in acquisition debt
- Binding
- no — a ratio; but a price expressed as a multiple of a defined EBITDA becomes binding when the definition does
- Typical ranges in 2024–2025
- listed payments companies 10–16× forward EBITDA; private mid-market fintech deals 7–12×; software with high recurring revenue above that; lenders and banks are valued on book value and earnings instead
- Typical adjustments
- normalised or adjusted EBITDA in the denominator; enterprise value in the numerator, so debt and cash are outside the multiple
- Parties
- buyers and sellers arguing about which EBITDA and whose comparables; lenders, for whom the multiple is a leverage ratio
How the EV/EBITDA multiple works in practice
A buyer looks at what similar companies are worth relative to their earnings and applies the ratio to the target. If listed payments processors trade at 12× EBITDA and comparable private deals have closed at 9–10×, a private payments company with €5m of EBITDA is worth somewhere around €45–50m of enterprise value — before the buyer's own view of growth, risk and synergies moves it. The multiple compresses everything the market believes about a sector into one number, which is its use and its danger.
Both halves need care. Enterprise value is equity value plus debt less cash, so the multiple is independent of the capital structure; a buyer paying "8×" pays 8× for the operations and then adjusts for the balance sheet. EBITDA is the version both sides agree on — normalised for one-offs, the owner's salary and the like — and a multiple applied to the wrong EBITDA is the commonest way to overpay. And the multiple is a snapshot of a market: 2021's fintech multiples were half gone by 2023, and a seller anchored on the old ones sells nothing.
For a fintech there is a further check. A payments company's EBITDA may depend on interchange rules, a sponsor bank's pricing and a take rate that is falling; a multiple borrowed from software assumes none of those, and the buyer's model should apply it to the EBITDA three years out, not today's.
Example
A payments company has €5.0m of reported EBITDA, €5.6m after the seller's adjustments and €4.8m after the buyer's quality-of-earnings work. Listed peers trade at 12×; the four most comparable private deals of the last two years closed at 8.5×, 9×, 9.5× and 11×, the last with a strategic premium. The buyer prices at 9.5× normalised EBITDA: €45.6m enterprise value. With €2m of net debt and a €1m working capital shortfall, the equity value is €42.6m. The seller had opened at 11× its own €5.6m — €61.6m — and the €19m gap was one turn of multiple and €0.8m of EBITDA, argued for six weeks.
Common mistakes
- Applying a listed-company multiple to a private company without a discount for liquidity and size. - Quoting a multiple without saying which EBITDA — reported, adjusted or normalised — it multiplies. - Using last year's multiple in a market that has re-rated. - Comparing an EV multiple with an equity-value price and wondering where the debt went. - Valuing a lender on EV/EBITDA; its "EBITDA" includes the cost of the money it lends, and the market uses book value and earnings instead.