The Multiple Game

In the land of Mergers & Acquisitions, one of the enduring terms is the “Multiple”. It’s out in front of every seller’s mind and some intermediaries even put multiples on the front of their brochure. It shows how sellers will get filthy rich at phenomenal “Multiples” to be gained by working with a particular intermediary. Well, those inferences are misleading.

Multiples are particular to a specific industry, company size, capitalization, market share, depth of management, proprietary products, and overall favor within an industry just to name a few criteria. And with what formula is the Multiple being applied?

Is it EBT, EBIT, EBITDA, Adjusted EBITDA, or some other formula? Look at the range of P/E Multiples as traded on any public exchange. The Multiple range may run as low as 5 and as high as 60. What is the correct Multiple or value range for a specific company?

The best answer is to take counsel from an IMAP member, who works full-time in the merger & acquisition industry. Occasionally, a seller can get lucky and the bidding process creates extraordinarily high results. But normally, the market is efficient and purchase offers tend to fall within a range. The market will tell a seller the value of a company. To try and beat the market is folly. To price a company well above the market invites buyers to return information and request, “Call us when the seller gets real.” A better strategy is to price a company 10% – 15% above a realistic range and negotiate hard. This brings more buyers to the party. Don’t be led by multiples shown in newspapers and advertisements. Multiples are appropriate only among similar quality companies in a simultaneous time frame. It is foolish to take the Multiple of a high profile company and superimpose it on just any other business.

The bottom line: Discuss the selling process and determine your company’s market value with an IMAP member. Then, trust his or her recommendation.

Charles V. Lemmon is President of C.V. Lemmon & Co., Inc., a private investment banking firm and IMAP member in Dallas, Texas.

Charles V. Lemmon is President of C.V. Lemmon & Co., Inc., a private M&A advisory firm in Dallas, Texas. Charles Lemmon can be contacted by telephone @ (214) 207-9694 or by e-mail at

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