average EV/EBITDA multiple in takeover situation


was just wondering (and actually got asked recently), what’s a typical range for the EV/EBITDA multiple to be paid in a takeover situation? I know there is not just one correct figure and that it both depends on industry and business cycle, but for an old-economcy situation, is a range of 4-6 plausible? Or 7-9?


As you said, it depends on the industry. 4x-6x EV/EBITDA is low. If you get down into the 4x EV/EBITDA range, you’ll see some interest for leveraged buyouts b/c there’s room for more debt relative to EBITDA (as a proxy for cash flow). Best Buy Company, Inc. comes to mind.

Right now, the S&P 500 average EV/EBITDA is approximately 9x to 10x. That’s with a trailing P/E of around 17x

When you’re using EBITDA multiples, sometimes a purchase multiple of 8x is often used as a benchmark. Right now approaching 10x EV/EBITDA, that’s a little high. You’ll obviously see acquitions below that and well above (EBITDA may be a bad proxy for cash flow, you’ve got to account for cash flow growth/decline, etc.) . Where I work, some of the senior people seem to use 8x as the benchmark (on first glance if it’s above 8x it’s expensive, below and it’s a good deal). I often argue with that type of thinking but whatever. Hope that is helpful.

Thank you very much, your reply was very helpful.