We generate $1.8 million in EBITDA and expect a 7x multiple based on lower middle market headlines, but investment bankers tell us private equity platforms will only offer 4.5x to 5x unless we reach $3 million or more. Why does the EBITDA size threshold depress our multiple, and how do we bridge that gap before going to market?

Question

Tyler Smith · Accepted Answer

Institutional private equity funds operate under strict fund size mandates. A company with less than $3 million in EBITDA is generally considered a tuck-in or bolt-on acquisition, where the buyer bears the cost and operational friction of integrating your team into an existing platform company. Because integration failure rates are high, buyers price that risk directly into the multiple, offering 4x to 5.5x.

Once an enterprise crosses $3 million to $5 million in clean EBITDA, it qualifies as an independent platform company. Platforms command 7x to 9x multiples because lenders provide syndicated senior debt packages, enabling the buyer to use non-recourse leverage to finance the transaction.

To bridge this valuation cliff without years of delayed timing, focus your operational engine on capacity expansion. Run your leadership team on EOS® to eliminate operational bottlenecks. Use the Accountability Chart to transition daily execution away from the Visionary and into an empowered Integrator. Deploy targeted AI workflows across delivery and administrative departments to scale capacity without adding linear payroll. Set quarterly Rocks dedicated entirely to margin expansion and customer tiering. Pushing EBITDA across the platform threshold transforms your multiple and can easily double net equity proceeds.