Two companies can earn exactly the same profit and be worth strikingly different amounts, and the explanation is rarely that one owner negotiated better. A multiple is not a price the market hands out by industry. It is the answer a buyer’s model produces once it has examined how reliable your earnings are, how much debt they will carry, and how many other people want to own them.
The multiple is an answer, not a starting point
Every conversation about private company value runs through the same arithmetic: enterprise value equals adjusted EBITDA multiplied by a multiple. The equation is perfectly true and quietly misleading, because it presents the multiple as something handed down from outside, when in practice it is the last number to be settled rather than the first.
A buyer will usually begin with a rough figure drawn from comparable businesses, but by the end the multiple is shorthand for everything the model concluded. As Meliora’s own guide on the subject puts it, the multiple ultimately becomes an output of the underlying financial model.
The distinction has consequences. An owner arguing about the multiple is arguing about a summary. The buyer is defending what sits beneath it: how much of this year’s profit will still be there next year, how much borrowing it will support, how much cash the business swallows simply to stand still, and who is running it a year after the owner has gone.
How a buyer builds the number
Private equity firms and strategic acquirers reach value by different routes, and they will not pay the same amount for the same company.
A private equity buyer runs a leveraged buyout, acquiring the business with a mixture of borrowed money and its own capital, commonly around half of each, after which the company’s own cash flow repays that debt over roughly five years. Even if the business is eventually sold for the same multiple it was bought at, the equity has grown considerably, because the debt standing against it has shrunk. The mechanism is a mortgage on a rental property.
Two things follow, and both tend to surprise owners. The first is that what a financial buyer can pay is limited by what a lender will lend, and lenders lend against cash flow they believe will still be there in several years. Contracted revenue supports borrowing; work rebid every year supports much less of it. The second is that capital expenditure, which EBITDA politely ignores, matters enormously, because only the cash left after reinvestment can service debt. A business that puts half its earnings back into equipment cannot carry the borrowing that an equally profitable business with modest equipment needs can.
A strategic buyer is an operating company, and it thinks about your business as a component of its own. It will typically project five to seven years of cash flow, discount that back to the present, then add what the business is worth specifically to them: routes that fill trucks already on the road, a plant that can absorb your volume, an overhead structure nobody needs twice. That last layer is why a strategic buyer can exceed anything a financial model would justify, and equally why strategics sometimes decline to bid at all. Synergies belong to one acquirer’s footprint, not to the market at large.
What actually moves the number
Everything that raises or lowers a multiple works through one of three doors. It changes what a buyer can forecast, it changes how much debt the business will carry, or it changes who is able to buy it at all.
Revenue that is contracted and renews on its own passes through all three doors at once, which is why it is the single most valuable characteristic a lower middle market business can have. Growth helps, but only growth that can be explained and repeated; one large win flatters a year without improving the forecast. Margins matter less for their level than for their direction. Capital intensity works quietly against you, because heavy reinvestment reduces borrowing capacity even while profits look healthy.
Customer concentration and dependence on the owner both operate through the third door, the one marked who can buy this. A business that only functions with its founder present narrows the field to buyers willing to accept that risk, and a narrower field means less competition. Scale works the same way, which is why size is a value driver in its own right: a larger company attracts institutional buyers, supports more borrowing, and spreads the fixed cost of a deal across a bigger base.
Industry sets the band, not the answer
Sector carries information about capital intensity, cyclicality, contract conventions and how hungry consolidators currently are. The scale of the difference shows up in public markets. Aswath Damodaran’s dataset of listed US companies, updated in January 2026, values packaging businesses at around 9.7 times EBITDA, trucking at 10.4, business and consumer services at 14.3, and machinery at 16.2.
Read the shape of that rather than the figures. These are large, liquid, publicly traded companies, and a private business with twenty or fifty million dollars of revenue is none of those things, so anyone presenting a public multiple as though it were yours deserves caution. What the spread does show is that structural differences between sectors are real, and that a strong company in a dull industry regularly outprices a weak one in a fashionable industry.
Two companies, one number
Consider two businesses, each producing three million dollars of adjusted EBITDA.
The first provides contracted facility services. Most revenue sits under multi-year agreements that renew automatically, its largest customer is under a tenth of the total, it spends very little on equipment, and a general manager and controller run it day to day.
The second is a custom fabrication shop. Every job is quoted and rebid, one customer represents nearly two fifths of revenue, half the profit goes back into machinery, and the owner prices every quote personally.
A buyer can forecast the first business, borrow comfortably against it, and run it without the seller. The second means underwriting a backlog that empties and refills continuously, a concentration risk with no contract behind it, and a founder who is, in effect, the pricing department. The two will not be valued alike, and the difference shows up in structure as much as in price: more of the second seller’s money is likely to be deferred rather than paid at closing.
That gap has nothing to do with industry and nothing to do with luck. It is a measure of how much of each business can actually be handed over
Thinking about selling your business?
If you would like to understand where your business sits against the drivers above, and what a defensible range looks like before you go to market, we are glad to walk through it with you.