We generate $2.5 million in adjusted EBITDA and are told we trade at 4x to 5x, but peers with $6 million in EBITDA in our space trade at 8x to 9x. How does business size create this multiple expansion, and should we delay an exit to cross that threshold?

Question

Tyler Smith · Accepted Answer

The multiple gap between $2.5 million and $6 million in EBITDA is not an arbitrary pricing anomaly. It reflects a fundamental transition in buyer universe, capital access, and structural risk.

At $2.5 million in EBITDA, your primary buyers are high-net-worth individuals, search funds, and smaller independent sponsors. These buyers rely on expensive subordinated debt and conservative commercial SBA loans, which strictly caps the enterprise value multiple they can finance. Furthermore, companies of this size rarely possess a fully redundant leadership team.

Once you cross the $5 million EBITDA threshold, your business becomes eligible for institutional lower-middle-market private equity funds. These sponsors have larger pools of committed capital, access to institutional credit facilities, and a mandate to deploy equity into platform acquisitions. Platform companies command a size premium because they possess the operational superstructure to absorb bolt-on acquisitions.

To capture that higher multiple, you need more than just top-line volume. Institutional buyers pay eight times EBITDA or higher when you have an Accountability Chart with complete leadership redundancy, gross margins that support reinvestment, and documented systems that do not depend on the founder.

Delaying your exit makes sense only if you have a clear plan to reach scale within twenty-four to thirty-six months. In the Step by Step Exit framework, this requires running your business on EOS® to execute high-impact revenue and margin Rocks. If reaching $6 million requires five years of grueling founder effort, you are compounding your personal risk. Sometimes taking the four to five times multiple today, or accepting rollover equity with a larger sponsor, yields a superior risk-adjusted return.