Understanding how a company is valued is fundamental for both buyers and sellers. We analyse the most commonly used valuation methods in the Spanish middle market, their limitations, and the factors that actually determine the final price.
Few topics generate more confusion in the world of business transactions than valuation. The business owner believes their company is worth what they have invested in it. The buyer believes it is worth what the numbers say. And the reality is that a company’s value is not a single objective number but a range that depends on context, the buyer, and the moment.
The most widely used method in middle-market transactions. The company’s normalised EBITDA is multiplied by a factor (the “multiple”) that reflects the sector, the company’s characteristics, and market conditions. The result is the enterprise value, from which net debt is subtracted to arrive at the equity value.
Advantages. Simple, intuitive, and widely understood. Allows easy comparison between companies and sectors.
Limitations. Highly sensitive to the normalisation of EBITDA (what adjustments are made) and to the choice of comparable transactions. A one-point difference in the multiple can represent millions of euros.
A DCF model projects the company’s future free cash flows and discounts them to present value using a discount rate that reflects the risk of the investment. The sum of discounted cash flows, plus a terminal value, gives the enterprise value.
Advantages. Theoretically the most rigorous method, as it values the company based on its future cash-generating ability.
Limitations. Heavily dependent on assumptions about future growth, margins, capital expenditure, and the discount rate. Small changes in assumptions can produce dramatically different results. In the middle market, where reliable long-term projections are rare, DCF is more art than science.
The value of the company’s assets minus its liabilities. This method is most relevant for asset-heavy businesses (real estate, infrastructure) or for companies being valued in a liquidation scenario.
Advantages. Straightforward and based on observable values.
Limitations. Does not capture the going-concern value of the business — its ability to generate future profits from its operations, relationships, and brand.
Valuation based on the prices paid in comparable transactions — acquisitions of similar companies in the same sector, geography, and size range. This method anchors the valuation in market reality.
Advantages. Reflects what buyers actually pay, not theoretical models.
Limitations. Comparable transactions are not always comparable. Differences in size, growth, margins, and deal structure can make direct comparisons misleading.
Beyond the methods, several qualitative factors have an outsized influence on the final transaction price:
Growth trajectory. Companies with demonstrated growth command significantly higher multiples than those with flat or declining revenues.
Revenue quality. Recurring, contractual revenue is worth more than project-based or one-off revenue. Diversified customer bases are worth more than concentrated ones.
Management team. A company with a professional management team that can operate independently of the founder is worth more than one that cannot.
Competitive position. Market leaders and niche specialists command premiums. Companies competing on price alone are penalised.
Clean financials. Companies with audited accounts, transparent reporting, and normalised EBITDA reduce buyer uncertainty and earn higher valuations.
Competitive tension. When multiple qualified buyers are competing for a company, the price rises. A single-buyer process tends to favour the buyer.
Valuation is not a formula — it is a negotiation informed by analysis. The methods provide a framework, but the final price is determined by the intersection of the seller’s expectations, the buyer’s assessment of value and risk, and the competitive dynamics of the process. Business owners who understand these dynamics — and who prepare their companies to present the strongest possible case — consistently achieve better outcomes.
By Blue Mountain Capital
By Blue Mountain Capital
By Blue Mountain Capital
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