A strategic buyer wants to value our company based on a multiple of our adjusted EBITDA, but our peers are being valued on a multiple of revenue. How do we determine which valuation methodology actually aligns with our operational strengths, and how do we pivot the negotiation if we are being undervalued?

Question

Tyler Smith · Accepted Answer

Whether you should push for an EBITDA-based multiple or a revenue-based multiple depends on your gross margins and your capacity for scale. Strategic buyers often prefer revenue multiples when they plan to absorb your operations and eliminate your redundant administrative costs, while financial sponsors almost always focus on EBITDA multiples to evaluate standalone cash flow.

If your business has high gross margins and scalable, automated workflows, a revenue multiple will typically yield a much higher valuation. To pivot the negotiation toward a revenue multiple, you must isolate your delivery margins from your administrative overhead.

Show the buyer your unit economics. Use your weekly Scorecard data to demonstrate that your cost to deliver your service decreases as you scale. If you can prove that adding one million dollars in new revenue only requires a fraction of that amount in operational costs, you make a compelling case for a revenue-based valuation.

If your margins are tighter, focus instead on maximizing your adjusted EBITDA by conducting a thorough review of your owner-related expenses and one-time operational investments, ensuring every possible add-back is documented and defended.