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Definition
Acquisition Multiple
The price paid for a business as a multiple of its annual earnings.
Definition
The acquisition multiple (also called EV/EBITDA multiple or price-to-earnings multiple) expresses what a buyer pays relative to annual earnings. It is the primary valuation metric in SMB acquisitions. Multiples vary significantly by industry, growth rate, and business quality. Paying a multiple above the sector high is a valuation red flag.
Formula
Multiple = Asking Price ÷ Annual Earnings (EBITDA or SDE)
Worked Example
A business asks $600,000 and earns $150,000/year. Multiple = $600,000 ÷ $150,000 = 4x. If the sector benchmark is 3–5x, this is within range. If the benchmark is 1–3x (e.g. restaurants), 4x is stretched.
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