If you own a company earning a few million dollars a year, its value is probably the largest number on your personal balance sheet. It is also the number owners are most often wrong about, in both directions.
Here is how buyers actually price a lower middle-market company, and what you can do to move the number.
Buyers start with EBITDA
Most buyers of companies worth $10 million to $250 million value them as a multiple of EBITDA: earnings before interest, taxes, depreciation, and amortization. It approximates the cash the operating business produces before financing and taxes.
Buyers rarely take reported EBITDA at face value. They adjust it for one-time costs, above-market owner compensation, personal expenses run through the business, and anything else that won't continue after a sale. These are called add-backs, and they are negotiated. A well-supported adjusted EBITDA is often the single biggest lever on price.
Then they apply a multiple
According to GF Data, private equity deals between $10 million and $25 million averaged 6.2x to 6.7x EBITDA in the first half of 2025. Larger deals tend to earn higher multiples, and smaller ones lower. An average is only a starting point. Real deals land well above or below it depending on the company.
What moves the multiple
- Size. Larger companies are seen as less risky and draw more buyers, so they earn higher multiples.
- Growth. Consistent growth that a buyer believes will continue is worth paying for. Declining revenue is heavily discounted.
- Recurring revenue. Contracts, subscriptions, and repeat work make earnings more predictable.
- Customer concentration. If one customer is more than about 20% to 25% of sales, buyers price in the risk of losing it.
- Owner dependence. If relationships, sales, or know-how live only with the owner, buyers discount the price or tie more of it to an earnout.
- Margins and quality of earnings. Clean, reviewed or audited financials and healthy margins build confidence.
- Competition. The most powerful factor of all. Several qualified buyers bidding on one timeline push both price and terms in your favor.
Enterprise value is not what you take home
The multiple gives an enterprise value. Your proceeds are that value minus any debt, plus excess cash, adjusted for the working capital you leave in the business, minus fees and taxes. Part may be paid later through an earnout or seller note, or kept as rollover equity. Structure deserves as much attention as the headline number.
Where to start
Our free valuation estimate gives you an instant, indicative range and shows which of these factors are helping or hurting you. For a precise view, we'll review your financials and adjust EBITDA the way a buyer would, at no cost and in confidence.
Source: GF Data, Small-Deal Resilience: Why the Under $25 Million Tier Still Moves in H1 2025.