A ratio applied to a financial metric (typically EBITDA) to estimate a company's value by comparing it to similar market transactions.
If EBITDA is the number that everyone argues about, the multiple is the number that turns that argument into money. A valuation multiple is the bridge between a company’s financial performance and its price tag — and understanding what drives multiples up or down is essential for both buyers and sellers.
A valuation multiple is a ratio used to estimate a company’s value by relating a financial metric (most commonly EBITDA) to the enterprise value implied by comparable transactions. The formula is straightforward:
Enterprise Value = Financial Metric x MultipleIn the Spanish mid-market, the most commonly used multiple is EV/EBITDA — the ratio of enterprise value to EBITDA. When someone says a company “trades at 6x,” they mean the implied enterprise value is six times its EBITDA.
Other multiples used in specific contexts include:
The power of multiples lies in their simplicity: they allow quick comparisons between companies of different sizes and provide a market-based benchmark for valuation. Their weakness is that they compress complex realities into a single number — two companies at the same multiple can have very different risk profiles, growth prospects, and cash generation characteristics.
Multiples are not arbitrary. They reflect the market’s assessment of a company’s risk and growth potential. The main factors that drive multiples higher or lower are:
Growth rate. A company growing revenue at 15% annually will command a higher multiple than one growing at 3%. Growth creates the expectation of higher future earnings, which investors pay a premium for.
Margin quality. Higher and more stable margins indicate pricing power, operational efficiency, and defensibility. A company with 25% EBITDA margins will typically trade at a higher multiple than one with 10% margins.
Revenue visibility. Recurring or contracted revenue (subscription models, long-term service agreements, multi-year supply contracts) provides predictability that reduces risk and increases multiples. A cleaning services company with 5-year facility management contracts trades at a higher multiple than one dependent on ad-hoc project work.
Customer concentration. If a company’s top three customers represent 60% of revenue, the risk of losing any one of them is a major concern. Diversified customer bases command higher multiples.
Sector dynamics. Some sectors structurally trade at higher multiples because they have better growth profiles, higher barriers to entry, or greater strategic interest from acquirers. Technology and healthcare typically command premium multiples; commodity distribution and basic manufacturing trade at discounts.
Size. Larger companies within the mid-market generally trade at higher multiples than smaller ones, reflecting their greater diversification, more robust management teams, and lower perceived risk.
Management quality. A strong, independent management team that does not depend on the founder adds value. If the company can run without the owner, the buyer takes on less key-person risk and pays a higher multiple.
As a practical reference, here are the typical EV/EBITDA ranges observed in the Spanish mid-market in recent years:
| Sector | Typical multiple range |
|---|---|
| Technology / SaaS | 8x - 12x |
| Healthcare services | 7x - 10x |
| Industrial services (engineering, maintenance) | 5x - 7x |
| Food & beverage | 6x - 8x |
| Logistics & transport | 5x - 7x |
| Hospitality & tourism | 6x - 8x |
| Manufacturing (industrial) | 5x - 7x |
| Construction & building services | 4x - 6x |
| Retail distribution | 4x - 6x |
These ranges are indicative and shift with market conditions, interest rates, and buyer appetite. Individual transactions can fall outside these ranges depending on the specific circumstances.
Blue Mountain is evaluating two potential investments in the logistics sector:
Company A: 30 million revenue, 3.5 million EBITDA, growing at 4% annually, top customer represents 25% of revenue, owns its fleet of vehicles, founder-dependent.
Company B: 22 million revenue, 2.8 million EBITDA, growing at 12% annually, top customer represents 8% of revenue, asset-light model, professional management team in place.
Company A might trade at 5.5x EBITDA (enterprise value approximately 19.3 million) reflecting its slower growth, customer concentration, and founder dependence.
Company B, despite being smaller in absolute terms, might trade at 7x EBITDA (enterprise value approximately 19.6 million) reflecting its superior growth, diversification, and management quality.
The multiple difference of 1.5x results in nearly identical enterprise values despite Company B having 30% less EBITDA. This illustrates why multiples are not just about the number — they are about the quality of the earnings behind that number.
Several factors explain the “size discount.” Larger companies have more diversified revenues, stronger management teams, better governance, and greater access to capital markets. They also attract more buyer competition (more PE funds competing = higher prices). Smaller companies carry more key-person risk, have less developed systems, and are accessible to fewer institutional buyers. The gap typically narrows as companies move from the lower to the upper mid-market.
Yes, and this is one of the most powerful value creation strategies. Actions that increase multiples include: reducing customer concentration, building a management team that can operate without the founder, implementing recurring revenue models, improving financial reporting and governance, and demonstrating consistent growth. These improvements can take one to three years but often add more value than an equivalent improvement in EBITDA.
Be cautious. Reported multiples in deal databases often reflect headline enterprise values that may not account for earn-outs, deferred payments, or other structural elements that affect the true price paid. Additionally, EBITDA figures used in calculating multiples may be pro-forma or adjusted in ways that are not disclosed. Always try to understand the full context behind any reported multiple.
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