Our company has reached five million dollars in EBITDA with strong operating margins, but we are still being quoted median industry multiples. How does the sheer size of our business and our positioning as a platform versus an add on affect our valuation multiple, and how do we prepare our operations to cross that threshold?

Question

Tyler Smith · Accepted Answer

The sheer scale of your EBITDA is one of the most significant levers in moving your valuation multiple. In the lower middle market, a business with two million dollars in EBITDA might command a four to five times multiple, while a business crossing the five to ten million dollar threshold can easily command seven to nine times. This jump occurs because institutional financial sponsors view your company as a platform acquisition capable of buying smaller add on companies rather than a risky owner dependent business. To capture this premium multiple, you must prove your operations are built for scale. This starts with your Accountability Chart. A buyer looking for a platform needs to see a complete, fully functioning leadership team where the Visionary and Integrator are not running daily operations. Use your V/TO® to show a clear three year picture and a scalable strategy that includes automated operations. If your leadership team is still bogged down in day to day fire fighting, buyers will price you as a risky, smaller add on and apply a steep discount. You must demonstrate that your team has the GWC™ to run the business without you before you hit the market.