Lower Middle Market & Middle Market M&A Multiples

It is crucial for investment bankers to understand the M&A marketplace in the middle market and particularly for the industries that they cover. In M&A, everyone goes off of multiples of adjusted EBITDA.

It is important for the investment banker to have a strong understanding of multiples in the M&A marketplace in general and then in his/her sector and sub-sector. In general in the middle market, we typically see 7x – 7.5x EBITDA for companies that are larger than $25M in TEV. For companies that are smaller than $25M in TEV, we typically see 5x – 5.5x EBITDA. There are adjustments that need to be made for size and predictability of revenues as well as for certain sectors (ex. software).

In the lower middle market to middle market, multiples usually are the following:

4x for <$1M EBITDA

5x for ~$1M EBITDA

6x for $1M – $2M EBITDA

7x for >$2M EBITDA

This is the method that we use at AltQuest Group to quickly value companies on the back of a napkin in discussions with CEOs and owners of companies. It can help set expectations with CEOs and owners and provide a roadmap to increasing valuation to met a target (for example, $5M or $10M in Total Enterprise Value (TEV)). Additional services can be provided to the company to move the company through the different phases of the perpetuity in additional to M&A such as growth advisory (management consulting).