What multiple should I expect when selling my business?

In two earlier articles, we dived into the topic of valuation multiples and how they are used to set a price for a business.

Firstly, in 'What is a multiple?' we run through how multiples are calculated and what financial metrics are used.

Then, in 'How to get a higher multiple when selling your business' we dive into what drives a multiple higher and the actions to maximise your multiple, and the Valuation Scorecard referred to below.

If you are new to multiples, I would recommend having a read of these two first.

The Valuation Scorecard™️

We've put together a scorecard of the top 15 factors that buyers are typically looking to see when valuing a business. Things like fast growth, healthy margins, a growing market and so forth.

These are broken into five categories: Financial, Buyer, Market, Risk and Other.

If you have many of these factors in your favour, you can expect a valuation multiple towards the top of the range. But if you're struggling to show many of these you should prepare yourself for a lower multiple.

We hope it's a useful prep exercise as you start readying yourself for an exit.

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How to use these numbers

Firstly, a disclaimer. Your valuation is very sensitive to factors specific to your business, the timing of the deal, and the buyers who are interested. So these are loose guides only. If you want to get a more real-world and concrete assessment of what your business is worth, follow the steps in this article.

And there can be MASSIVE outliers when looking at multiples, especially on the high side. These tend to be the ones that get reported in the press, and can give business owners a distorted impression of what their business is worth.

And sometimes multiples aren’t applied at all, or unusual financial metrics are used (see the first article above again).

But for 80% of business acquisitions, the benchmarks below should provide a rough guide to set your expectations on where you might end up.

We're using the most common financial metric here, the last full year's EBITDA.

👉 Very High: 15+ times EBITDA

If you're in this category, well done! Perhaps only 10% of private M&A deals end up in this valuation.

There are three ways that you get up to these dizzy heights.

1) You're a great 'All Rounder'. You tick nearly all of the boxes on the Valuation Scorecard: growing fast, good margins, in a great industry with good recent comparables. And you've run a great process, with multiple buyers and clean due diligence.

2) There's a perfect buyer. Sometimes, there's buyer who is a perfect fit with your business. That means the synergies are obviously high and look easy to obtain. For them, it makes sense to pay an amount which might look inflated to others. But remember - you need a second bidder to force them to pay this much.

3) Or, there's one factor which stands out strongly enough to push your valuation so high. That could be a bidding war between two very keen buyers, or a market (like AI in 2024) that get really, really hot.

👉 High: 8-15 times EBITDA

Like the All Rounder above, you're ticking many of the boxes on the Valuation Scorecard. You will need very healthy growth and good margins, and some evidence that these are likely to continue like recurring revenue, a competitive moat, pricing power or some valuable tech.

The industry might not be super hot, but you will need some recent deals in this range to convince a buyer that this valuation multiple is reasonable.

As always, it really helps is there is more than one buyer in the deal.

👉 Medium: 4-8 times EBITDA

Over 50% of deals fall into this range.

You have some points in your favour that make you an attractive target and worth an acquisition, but you're not the All Rounder.

You might be a service business or agency with relatively low margins and no recurring revenue. Or perhaps you've had a choppy few years financially that make a buyer a little uneasy about the future. Or you're in an unsexy market where the multiple are just not that high.

In any event, even at the lower end of this range you can still get a life-changing exit.

👉 Low: 2-4 times EBITDA

Now we get into the lower valuation multiples.

The same analysis applies as above, but in reverse. You're scoring poorly on the Valuation Scorecard, so there are more factors working against you than in your favour.

Typically, this is because the business is facing some headwind or structural decline that looks very difficult to reverse. That could be a shrinking industry (like print media post 2020), a thriving competitor or new regulations that will hamper growth.

If you're in this range, you might want to consider whether you want to sell at all. Remember, if the multiple is 2 times EBITDA that means that in two years you would have made that EBITDA and still own the business. That decision will turn on your own assessment of the business and its prospects.

👉 Very Low: Less than 2 times EBITDA

To fall into this category, the business is classed as distressed.

There's a major issue that means you're effectively being bought 'for scrap'. Most often this is because you are insolvent or close to, or reaching the end of your runway. A buyer knows that you have few options, and that the alternative to their low-ball offer is getting nothing.

There could be another issue which is similarly terminal: a business-ending litigation hanging over you or the expiry of a key patent.

How to dive deeper

These are ballpark figures, and quite wide ranges. If you want to narrow the range and get a more accurate idea of what your business is worth, there are three steps you can take.