How to Interpret EV/EBITDA in M&A and Business Valuation

The key role of EV/EBITDA in business valuation

In business valuation, the objective is not simply to “put a number on it”, but to arrive at a reasonable value that can be defended before investors, buyers, lenders and—very often—the owning family. EV/EBITDA is used precisely for that:

• It helps estimate Enterprise Value (company value) based on multiples observed in comparable transactions or listed peers.
• It makes it easier to compare offers from different buyers (for example, private equity vs strategic buyers) on a like-for-like basis.
• It helps cross-check outcomes against other methodologies such as DCF or other comparable multiples.

In this context, EV/EBITDA does not replace a full business valuation report  but it is a very useful indicator to test whether a proposed price is aligned with what is being paid in the market for similar businesses—and whether an additional premium is justified (for example, due to synergies, the management team, or positioning in defensible niches).

What EV/EBITDA is and why it matters so much in corporate transactions

The EV/EBITDA ratio indicates how many times EBITDA the market (or a buyer) is implicitly paying for the business as a whole. That is why it is a core reference in corporate transactions and M&A processes: it links the company’s total value to the operating performance that supports it.

It is also relatively neutral to capital structure, because it removes the effect of how the company is financed (more or less debt, interest rates, etc.), which makes it particularly suitable for comparing different companies in sale processes or investor entry situations.

EV/EBITDA connects:

• Enterprise Value (EV) or Company Value: the value of the business as a whole, as if it had neither net financial debt nor surplus cash.
• Equity Value (EqV) or Share Value: market capitalisation (or the agreed value for 100% of the shares/quotas in an unlisted company).
• NFD (Net Financial Debt): interest-bearing debt minus surplus cash.

The relationship between EqV and EV is: EqV = EV – NFD. Rearranging: EV = EqV + NFD.

In other words, the value of the shares (EqV) equals the value of the business (EV) minus Net Financial Debt; or, viewed another way, the value of the business (EV) equals the value of the shares (EqV) plus Net Financial Debt.

Example: a company whose shares (EqV) are worth €100 million and which has Net Financial Debt of €30 million would have an Enterprise Value (EV) of EV = EqV + NFD = 100 + 30 = €130 million.

Or, a company with an EV of €130 million and Net Financial Debt of €30 million would have a share value of EqV = EV – NFD = 130 – 30 = €100 million.

EBITDA: earnings before interest, taxes, depreciation and amortisation, which approximates the business’s recurring operating profitability.

EV/EBITDA = Enterprise Value / Normalised EBITDA

This approach makes it possible to compare companies with different debt structures, tax profiles or depreciation policies, focusing on their ability to generate sustainable operating results. In practice, EV/EBITDA is often the best compromise between simplicity, comparability and economic relevance—provided EBITDA has been properly normalised.

Advantages and limitations of multiple-based valuation vs other valuation methods

Multiple-based valuation has clear strengths, but also limitations that are important to keep in mind.

Advantages of using EV/EBITDA vs other methods:

• It is relatively fast and requires less information than a discounted cash flow (DCF) model.
• It helps cross-check other valuation methodologies (DCF, adjusted net asset value, etc.).
• It incorporates information already reflected in the market, particularly when using listed peers and recent transactions as references.

Weaknesses:

• Selecting the right comparables is critical and requires deep sector knowledge. Poor selection undermines the result.
• Multiples rely on metrics that are largely accounting-based and sensitive to tax criteria and local standards.
• They do not capture capital intensity (CAPEX) and its timing in enough detail.
• When applying listed-company multiples to unlisted companies, it is necessary to adjust for illiquidity and size differences.

For these reasons, multiples (including EV/EBITDA) should be understood as complementary to DCF rather than a substitute. In professional practice, both approaches should converge towards a reasonable valuation range.

Key drivers when calculating EV/EBITDA in M&A processes

The importance of choosing the right comparables (peer group)

The quality of a multiples-based valuation is only as good as the peer group selection. An unsuitable set of comparables can lead to completely misleading conclusions. To be useful, comparable companies should resemble the target in aspects such as:

• Activity and business model: similar products and services, comparable revenue mix.
• Markets and countries of operation: similar regulation, cycles and risk profiles.
• Margins and profitability: similar EBITDA levels and returns on capital.
• Growth prospects: expected evolution of sales and earnings.
• Size and positioning: market share, brand awareness, competitive niche.
• Management quality and track record.

In practice, it is almost impossible to find “twin” companies, but it is critical to reach a reasonable level of comparability. At Maraz, we invest significant time in this preliminary phase: we analyse the target in detail (history, sector, Porter’s 5 Forces, shareholder structure, operating countries, etc.) and only then define the set of peers and reference transactions.

Truly “normalised” EBITDA

On the EBITDA side, the main adjustments usually include:

• Removing non-recurring income and expenses (one-off severance costs, closure of business lines, exceptional grants, etc.).
• Adjusting shareholder-director remuneration if it is above or below market (very common in family businesses).
• Removing atypical projects or contracts that will not repeat. Removing income and expenses unrelated to the business (shareholders or other related companies).
• Harmonising accounting policies between the target and the peer group.

Only then will the resulting multiple be genuinely comparable to those observed in sector transactions or similar listed companies.

Other considerations to calculate EV/EBITDA correctly in an M&A process

More important than quoting a “market multiple” is ensuring that both EV and EBITDA have been calculated correctly. A small error in either can translate into several million euros in the final price. When calculating EV, it is worth reviewing:

• Net financial debt: bank loans, credit lines, bonds, shareholder loans and other interest-bearing debt, less surplus cash.
• Leases and off-balance-sheet liabilities: under standards such as IFRS 16, many leases are recognised as debt; it is important to harmonise criteria across peers.
• Provisions and contingent liabilities: litigation, labour commitments, significant guarantees… may require additional adjustments.
• Non-operating assets: properties or investments not part of the business “core” should be isolated to avoid distorting the multiple.

How to interpret the EV/EBITDA multiple in business decision-making

Once the multiple has been calculated, the most delicate part begins: interpreting it in context. An EV/EBITDA of 7x means nothing on its own unless we compare it with the sector, the quality of the business and market conditions.

Typical ranges and what moves the multiple

At a very high level, you may observe:

• Stable B2B services, distribution or light industrial businesses with good visibility and reasonable margins: typical ranges between 6x and 8x EV/EBITDA, depending on risk, size and recurrence.
• Companies with a strong technology component, recurring revenues (SaaS, software, platforms) and high growth: multiples that can exceed 10x EV/EBITDA.
• Highly mature, cyclical sectors or sectors under intense competitive pressure: significantly lower multiples.
• A distribution business (buy-sell) range between 5x and 6x EV/EBITDA.

Beyond sector, key drivers include:

• Stage of the economic cycle and interest rates.
• Historic and expected growth.
• Company size and customer diversification.
• Quality of the management team and corporate governance.
• Potential synergies for a specific buyer (strategic buyers or funds).

Trading multiples vs transaction multiples

Another key point is to distinguish between:

• Trading multiples: those observed in listed companies (based on market price). They reflect typically minority stakes, without a control premium.
• Comparable transaction multiples: based on prices actually paid in M&A transactions for similar companies, where there is often a control premium and expected synergies.

In a sale of 100% of an unlisted company, the relevant range is usually closer to transaction multiples than to stock-market multiples, once differences in size, risk and liquidity have been adjusted for.

Warning signs when analysing EV/EBITDA

Multiple well below the market:

• It may indicate an opportunity (undervalued company, need for a quick sale, operational upside).
• Or it may reflect hidden risks: dependence on key customers, succession issues, litigation, high CAPEX…

Multiple well above the market:

• It may be justified by an exceptional competitive position, strong growth, or meaningful synergies.
• But it can also signal unrealistic expectations or a sector bubble.

Correct interpretation always requires combining quantitative analysis (multiples, comparables, DCF) with a qualitative view of the business.

Practical case study: applying EV/EBITDA in M&A and business valuation

Imagine a family-owned industrial company—“Company X”—in the metal sector, with €45 million of revenue and operations in Spain and Portugal. The shareholders are considering selling 100% of the equity to a financial investor and want to know whether incoming offers truly reflect the company’s value.

Transaction context

• Turnover: €45m
• Reported EBITDA (last year): €6.0m
• Gross financial debt: €14m
• Available cash: €2m
• Net financial debt: €12m

The company has a stable track record, a diversified industrial customer base, and a professionalised management team, although it remains family-owned.

The financial adviser’s objective is to estimate a reasonable Enterprise Value (EV) range and, from that, the Equity Value to guide negotiations with potential buyers.

Step 1: EBITDA normalisation

A detailed review of the profit and loss account identifies several non-recurring items:

• €0.4m of severance costs related to the closure of a discontinued business line.
• €0.3m of an exceptional grant for an R&D project that will not repeat.
• The CEO is a shareholder and is paid significantly below market; it is estimated that €0.2m should be added to bring remuneration to market level.

Start from reported EBITDA (€6.0m) and adjust:

Remove non-recurring expenses that reduced EBITDA: +€0.4m (severance)
Remove non-recurring income that inflated EBITDA: –€0.3m (one-off grant)
Adjust CEO remuneration to market level: –€0.2m (higher recurring personnel cost)

Normalised EBITDA: €6.0m + €0.4m – €0.3m – €0.2m = €5.9m

This is the adjusted EBITDA, which better reflects the real capacity to generate recurring operating results.

Step 2: Comparable analysis and EV/EBITDA multiple selection

Identify:

• 5 listed European companies in the industrial / metal-mechanics sector with similar size and margins.
• 3 recent transactions involving comparable companies in Spain and Italy.

From these references:

• EV/EBITDA trading multiples (listed): 6.5x – 7.5x
• EV/EBITDA transaction multiples (100% sale): 7.0x – 8.5x, typically including a control premium.

Adjusting for:

• Slightly smaller size of “Company X” vs some listed peers.
• Reasonable risk profile (diversified portfolio, but somewhat cyclical sector).
• Good level of professionalisation of the management team.

Conclusion: a reasonable EV/EBITDA range is 7.0x to 8.0x on normalised EBITDA.

Step 3: Enterprise Value and Equity Value calculation

With normalised EBITDA of €5.9m and the selected multiple range:

• Low case (7.0x): EV = €5.9m × 7.0 = €41.3m
• High case (8.0x): EV = €5.9m × 8.0 = €47.2m

Estimated Enterprise Value (EV) range: €41.3m – €47.2m

Then derive Equity Value by subtracting net financial debt:

Net financial debt = €14m – €2m = €12m

• Low case: Equity Value = €41.3m – €12m = €29.3m
• High case: Equity Value = €47.2m – €12m = €35.2m

A reasonable range for the equity value: approximately €29m – €35m.

This becomes the internal reference range the adviser will use to evaluate offers.

How Maraz Corporate Finance supports family-owned and mid-market businesses

At Maraz Corporate Finance, we combine all of this theory with the real-world situation of the companies we work with: family businesses and mid-to-large companies (€10m–€300m turnover) with national presence, especially in Valencia, Alicante, Castellón, Murcia and the Balearic Islands. In a sale process, fund entry or financing search:

• We analyse the business in depth (model, sector, team, risks and value levers).
• We define a rigorous peer group and a real set of comparable transactions.
• We adjust and normalise EBITDA so it reflects sustainable profitability—particularly important in family businesses.
• We calculate and cross-check relevant multiples (EV/EBITDA, EV/Sales, P/E, etc.) with DCF models and synergy analysis.
• We support the owner throughout the negotiation, helping defend a robust valuation range and structure the deal (price, timelines, earn-outs, warranties…).

If you are considering selling your company, bringing in a partner, or simply want to understand the market value of your business, we would be pleased to review your case and explain—using data and comparables—what multiples are being paid in your sector today and how to position your company at the top end of the range.

Final considerations for a robust valuation using the EV/EBITDA multiple

In short, EV/EBITDA is a powerful tool—but only when used rigorously. A solid valuation requires, first, well-adjusted data: an Enterprise Value correctly calculated (including net financial debt, relevant liabilities and non-operating assets) and a truly normalised EBITDA, cleansed of non-recurring items and aligned with the operational reality of the business.

Second, it requires contextual interpretation: the multiple only becomes meaningful when compared with similar companies and transactions, considering the sector, the economic cycle, the company’s size, its risk profile, its management team, and the potential synergies for each buyer type.

That is why, rather than searching for a “magic number”, the aim is to build a reasonable and defensible valuation range where EV/EBITDA sits alongside other methodologies (such as DCF) and a deep qualitative analysis of the business.

In significant processes—sale of a family business, fund entry, shareholder reorganisation or financing—expert support often makes the difference between accepting a market-imposed price and being able to explain and defend the company’s true value.

If you are considering an M&A process, investor entry, or simply want to know the value of your company, the Maraz Corporate Finance team can help you analyse the business, define the right multiple range, and structure the transaction to maximise value for shareholders.

Javier de Rojas Roca de Togores

Partner – Maraz Corporate Finance