A valuation multiple expresses a business's value as a multiple of a financial metric — most commonly adjusted EBITDA in the lower mid-market. "5x EBITDA" on a £1,000,000 adjusted EBITDA business implies a £5,000,000 enterprise value. The mechanics are simple; what actually determines the multiple is where the real judgment lives.
What moves a business up or down within its sector range
- Revenue quality — recurring or contracted revenue typically commands a premium over one-off, project-based work
- Customer concentration — a business reliant on one or two customers for the bulk of revenue is inherently riskier, and priced accordingly
- Growth trajectory — a business growing 20% a year is worth a different multiple than a flat or declining one, even at the same current EBITDA
- Owner dependency — how much of the business's value walks out the door if the current owner leaves
- Documentation and verifiability — how much of the story a buyer can independently confirm from real records versus simply being told
Where a credible multiple actually comes from
Two sources exist, and they are not the same thing. The first is a real comparable transaction: a named business, a disclosed price, a disclosed or derivable EBITDA, and a citable source. The second is a sector-average estimate — useful as a rough starting point, but an average, not an evidenced figure for any specific deal.
A range built from three or four genuinely comparable, similarly-sized transactions in the same sub-vertical is far more defensible than a sector-wide average pulled from an industry guide — even though the latter often looks more "official." Fewer, better, real data points beat more, vaguer ones.
A range, not a number
Any honest valuation is a range, not a single figure — and the range should come with its own evidence: how many comparable transactions support it, and how confident that evidence base actually is. A range presented without that context is asking to be trusted on faith.