Valuation Multiples: A Practical Guide for Business Owners

Valuation multiples are the most widely used method in M&A transactions to determine a company's price. In this article, we explain how they work, which multiples are used, and what the typical ranges are in the Spanish market.

What is valuation by multiples?

Valuation by multiples is a relative valuation method that determines a company's value by comparing it with similar companies that have been sold or are publicly traded. The basic formula is:

Company Value = Financial Metric × Multiple

For example, if a company has an EBITDA of €2 million and the market multiple is 6x:

Value = €2M × 6 = €12 million

Types of multiples

EV/EBITDA (Enterprise Value / EBITDA)

The most widely used in M&A. It measures how many times the operating result a buyer is willing to pay.

Advantages:

• Comparable between companies with different capital structures
• Not affected by tax or depreciation differences
• Market standard

When to use it: Profitable companies with stable positive EBITDA.

EV/Revenue (Enterprise Value / Revenue)

Useful when EBITDA is negative or highly variable.

Advantages:

• Always positive
• Less manipulable than profit
• Useful for growth companies

When to use it: Startups, loss-making companies, tech/SaaS sectors.

P/E (Price / Earnings)

Relationship between price and net profit. More commonly used for listed companies.

Advantages:

• Easy to understand
• Directly related to investor return

When to use it: Listed companies, comparison with investment alternatives.

Multiples by sector in Spain (2025-2026)

These are the indicative EV/EBITDA multiple ranges in the Spanish market:

Note: Multiples vary significantly depending on size, growth and business quality.

Factors affecting the multiple

Factors that INCREASE the multiple

1. Sustained growth: Companies with CAGR >15% obtain significant premiums
2. Recurring revenue: Subscription models or long-term contracts
3. Superior margins: Profitability above sector average
4. Low customer concentration: Diversified portfolio
5. Strong management team: Professionalised management with continuity
6. Barriers to entry: Proprietary technology, licences, brand
7. Scalability: Ability to grow without proportionally increasing costs

Factors that REDUCE the multiple

1. Founder dependence: Risk of losing know-how and relationships
2. High concentration: Few customers represent large portion of sales
3. Declining sector: Markets with negative growth
4. Capex intensive: Need for high recurring investments
5. Cyclicality: Results highly sensitive to economic cycle
6. Earnings quality issues: Questionable accounting adjustments

How to find comparables

Information sources

1. Transaction databases: Mergermarket, Capital IQ, PitchBook
2. Listed companies: Yahoo Finance, Bloomberg, analyst reports
3. Sector reports: Business associations, consultancies
4. Press news: Announced transactions with public data

Selection criteria

• Similar sector: Same NACE code or comparable activity
• Comparable size: Companies of similar scale (±50%)
• Geography: Preferably same market or region
• Timing: Recent transactions (last 2-3 years)
• Transaction type: Distinguish between majority, minority, strategic, financial

The valuation by multiples process

Step 1: Normalise EBITDA

Before applying the multiple, EBITDA must be adjusted to reflect sustainable real profitability:

Common adjustments:

• (+) Owner's salary above market rate
• (+) Personal expenses charged to the company
• (+) Non-recurring costs (restructuring, litigation)
• (-) Extraordinary income
• (+/-) Related party rents outside market rates

Step 2: Select appropriate multiple

Based on:

• Transaction comparables
• Listed comparables (with illiquidity discount)
• Sector range adjusted for business quality

Step 3: Calculate Enterprise Value

EV = Normalised EBITDA × Multiple

Step 4: Calculate Equity Value

Equity Value = EV - Net Financial Debt

Where Net Financial Debt = Interest-bearing debt - Cash - Non-operating assets

Common mistakes to avoid

❌ Not normalising EBITDA

Using accounting EBITDA without adjustments distorts the valuation.

❌ Inadequate comparables

Using multiples from companies very different in size, geography or business model.

❌ Ignoring debt

Confusing Enterprise Value with Equity Value is a serious error.

❌ Applying listed company multiples without adjustment

Listed companies trade at a liquidity premium. Apply a 20-30% discount.

❌ Not considering market conditions

Multiples vary with the economic cycle and market conditions.

Practical example

Company: Family-owned industrial distributor

Conclusion

Valuation by multiples is a fundamental tool for any business owner considering selling their company or seeking investment. Understanding how it is applied and what factors influence the multiple will allow you to negotiate from an informed position.

At Capittal, we perform professional valuations that combine multiple methodologies to determine the most realistic value range for your company. Contact us to obtain a free indicative valuation.