Independent sponsors typically value lower-middle-market businesses on a multiple of adjusted EBITDA, with cross-checks against precedent transactions and discounted cash flow.
Multiple ranges
Quality lower-middle-market businesses ($3 million to $20 million EBITDA) transact at five to nine times trailing twelve-month EBITDA depending on growth, margin, customer concentration, and sector.
What moves the multiple up
Recurring revenue, strong management depth, diversified customer base, growing end markets, sticky competitive position, and clean financial reporting.
What moves it down
Customer concentration, owner dependence, cyclical end markets, regulatory exposure, working capital intensity, and limited visibility into forward bookings.
Adjusted EBITDA
Sponsors will negotiate hard on add-backs. Owner compensation above market, one-time legal fees, and discontinued product lines are typically accepted. Aspirational synergies and growth investments rarely are.
If you are evaluating a transaction in this space and want a candid second look, Solender Capital is happy to compare notes. Reach out through our contact page and share what you are working on.