The average EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) multiplier is a ratio that indicates how much a buyer is willing to pay for a business based on its EBITDA. It is calculated by dividing the enterprise value or purchase price of a business by its EBITDA. The average EBITDA multiplier varies depending on the industry, size, growth, profitability, risk, and other factors of the business.
Some people may think that the average EBITDA multiplier is 8 or 10 because they have heard of some high-profile deals or transactions that involved such multiples. However, these are not representative of the general market or the typical business. They are usually outliers that involve businesses that have exceptional performance, competitive advantages, strategic value, or synergies for the buyers. They may also reflect different valuation methods, deal structures, or accounting practices that inflate the reported EBITDA or enterprise value.
The average EBITDA multiplier for most businesses is lower than 8 or 10. If the average is 8, that would mean that ½ of the businesses sell for more than 8 times their EBITDA & half sold for less. The median EBITDA multiplier also varied by industry, e.g., typically much lower multiples for restaurants compared to manufacturing multiples. Therefore, it is important to use industry-specific and market-based data to determine the appropriate EBITDA multiplier for a business, rather than relying on arbitrary or anecdotal numbers.