The debate over whether a small company can be sold starts from an incorrect premise: that size determines value. In M&A, what determines value is margins, market position, and team quality. Size is secondary.
Let me propose an exercise. Two Spanish companies, two very different realities.
The first turns over €5 million. It has 28 employees. It operates in the industrial maintenance sector, with annual service contracts with 35 clients. The renewal rate for those contracts exceeds 94% year after year. Its EBITDA is 18%, amounting to €900,000 annually. No single client represents more than 8% of revenue. It has a two-person management team who have been running operations for ten years and would stay on if the founder sold.
The second turns over €32 million. It has 180 employees. It operates in the construction materials distribution sector. Its EBITDA is 2.5%, approximately €800,000. Forty-five percent of its revenue depends on three construction companies with whom the founder has direct personal relationships. It has no consolidated management team outside the founder himself.
Which of the two companies is more attractive to a buyer?
The intuitive answer — the €32M company, because it is larger — is the wrong answer.
In a company acquisition transaction, the price is determined primarily as a multiple of normalised EBITDA. In the Spanish middle market, that multiple typically ranges between 4 and 8 times for services, industrial, and distribution businesses, with significant variations based on the business profile.
Back to our two companies.
The €5M company generates €900,000 in EBITDA. With a multiple of 6 times — reasonable for a business with recurring revenues, low customer concentration, and a capable management team — the sale price would be approximately €5.4 million.
The €32M company generates €800,000 in EBITDA. With a multiple of 4 times — already high for a business with such thin margins, high customer concentration, and founder dependence — the sale price would be approximately €3.2 million.
The company ten times smaller in revenue is worth more in absolute terms, and dramatically more relative to the effort and capital employed by the buyer.
This exercise is not an invented case to illustrate a thesis. It is a simplification of patterns that repeat constantly in the Spanish company acquisition market.
If company size is not the determining factor of value, what is? In our experience, five factors account for the majority of the difference between a high valuation and a low one.
First: the quality of EBITDA. Not just its absolute level, but its composition and sustainability. A 15% EBITDA based on multi-year contracts and diversified clients is worth far more than the same percentage generated by a combination of non-repeatable circumstances: a large client who might leave, a one-off project that will not recur, a cost reduction that is not sustainable. EBITDA quality is factor number one.
Second: founder independence. The more the company can function without the owner’s daily involvement, the more it is worth. Founder dependence is the primary price discount factor in SMEs. An otherwise identical company is worth between 20% and 40% more if it has a management team capable of operating autonomously.
Third: customer concentration. If the largest client represents more than 20% of revenue, the buyer sees a significant risk. If the top three clients account for more than 50%, the risk is very high. Diversification of the client base is an important valuation factor, regardless of the company’s size.
Fourth: competitive position. Why do customers buy from this company and not from the competition? The answer to this question is the essence of value. A company that is the preferred supplier of its clients for technical, service, or relationship reasons that are difficult to replicate has a competitive advantage worth far more than the volume of revenue.
Fifth: growth potential. Not historical growth, but future potential. What could this company achieve with additional capital, a broader distribution network, investment in production capacity? The buyer is purchasing the future, not the past. A €5M business with a clear growth path to €12M in five years is far more interesting than a €20M one with no obvious growth levers.
There is a type of company that illustrates better than any other why size is secondary: the niche leader.
Imagine a company that manufactures temperature control systems for industrial ceramic kilns. It is not a huge market: there are perhaps 300 ceramic manufacturers in Spain and 2,000 across Europe. But this company is the reference supplier for 40% of Spanish manufacturers and has clients in Italy, Portugal, and Morocco. It turns over €4.5 million, with a 22% EBITDA and a 97% client retention rate.
Is it a small company? In absolute terms, yes. Is it a high-value company? Absolutely. Its position in that specific niche is almost unassailable: it has decades of client relationships, technical know-how that would take years to replicate, and certifications and approvals that are real barriers to entry.
Niche leadership compensates for size in the mind of any sophisticated buyer. In fact, it amplifies it: the more specific and technical the niche in which a company leads, the more defensible its position and the harder it is for a larger competitor to enter on price.
There is a paradox in the M&A market that few business owners know about: the most sophisticated buyers frequently prefer the €5-20M revenue segment to the €50-200M one.
The reason is the relationship between price and business quality. In the large-company market, buyer competition is intense: private equity funds, corporates seeking strategic acquisitions, international buyers. That competition pushes prices up and compresses return multiples. In the mid-sized company segment, there is less competition and more businesses available. The buyer who can identify quality in that segment can find excellent businesses at reasonable prices.
That means the owner of a well-run SME has, in the current market, more options than they imagine. There is no shortage of buyers for a €5M company with good fundamentals. What is scarce is €5M companies with good fundamentals.
If you own a company in the €3-20M range and arrived at this article thinking your company “is not large enough” to sell, I hope to have contributed to dismantling that premise.
Size does not determine whether your company can be sold. What determines whether it can be sold, and at what price, are the factors we have analysed: EBITDA quality, founder independence, customer diversification, competitive position, and growth potential.
If you would like to understand how your company positions on these five factors, you can start with our company valuation tool and then let us talk. It is a conversation that can give you significant information about the value of what you have built — regardless of whether you decide to sell or not.
For additional context, you may find our analysis of what a buyer looks for in a company and our guide on the emotional process of selling useful.
By Dirk Manuel Martens Jiménez
By Dirk Manuel Martens Jiménez
By Dirk Manuel Martens Jiménez
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