One of the most frequent questions in a sale process appears simple: how much is my company worth? The temptation is to look for an equally simple answer.
Multiply EBITDA by four, five, six or eight and arrive at a valuation. The problem is that two companies with exactly the same EBITDA can be worth significantly different amounts.
The multiple does not explain value. It is a consequence of it. Before discussing multiples, it is important to understand what lies behind the numbers.
A buyer usually begins with the quality of earnings. EBITDA of two million euros generated on a recurring basis, from a diversified customer base and predictable contracts, is not necessarily worth the same as identical EBITDA that depends on three customers, an exceptional order or conditions that are unlikely to recur.
Then there is growth. A company that has grown consistently, operates in a market with potential and has demonstrated an ability to gain market share will tend to justify a different valuation from a stable or declining business.
But growth without cash generation also raises questions.
If each additional euro of sales requires significant investment in equipment, inventory or customer credit, EBITDA alone is not enough. The conversion of earnings into cash flow becomes essential.
A company valuation must therefore consider profitability, growth, investment, working capital, risk and cash generation together.
The quality of the organisation itself also affects value. A company with an autonomous management team, established processes and high-quality reporting is easier to integrate into an acquiring group. By contrast, an organisation that depends excessively on its shareholders introduces additional risk at precisely the moment when those shareholders intend to leave.
There are also factors specific to each transaction. A financial buyer is primarily concerned with the return it can obtain on the capital invested. A strategic buyer may look at the same company and identify commercial, industrial or technological synergies that make the asset particularly relevant.
Value, therefore, does not exist entirely independently of who is on the other side of the table.
It is also important to distinguish Enterprise Value from Equity Value.
The price attributed to the business does not necessarily correspond to the amount received by the shareholders. Financial debt, cash, debt-like items and possible working-capital adjustments can materially change the final value of the equity.
This is precisely when expressions such as "cash-free, debt-free" or "normalised working capital" cease to be technical concepts and begin to have a concrete economic impact.
Valuing a company is therefore not a matter of choosing a multiple from a table.
It means building a well-founded view of the business's future ability to generate earnings and cash, while incorporating the specific risks of the company, the sector and the transaction itself.
There is also an important practical consequence: an owner who understands in advance the factors that influence the company's valuation can act on many of them.
They can diversify customers. Improve margins. Professionalise management. Reorganise non-operating assets. Improve financial reporting. Resolve contingencies. Reduce working-capital requirements.
In other words, a valuation is not useful only for finding out what a company is worth today. It can also help identify what needs to be done for it to be worth more tomorrow, which is probably its most strategic use.