In the world of M&A, everyone seems to agree quickly: “8x EBITDA,” “1x revenue,” “10x EBIT – expensive? Always relative, but certainly strategically justified.”
The language of multiples is universally understood, comparable, and catchy. Almost like an exchange rate – or a quick truth.
But how much reality lies behind this arithmetic logic?
A multiple reflects expectations. Expectations about growth, profitability, market position – but also about narratives, synergies, capital availability, and not least: sentiment. It is a price that appears rational on the outside, yet often emerges from gut feeling or negotiation dynamics.
And it is almost always based on the past. Historical metrics like EBITDA or revenue serve as reference points – even though what truly matters lies in the future. Multiples can pretend that the value of a company can be read from its rearview mirror. But what happens when the road ahead turns out to be more winding than expected?
In competitive processes, the multiple becomes a bidding lever. In board presentations, it becomes proof of “market-driven” decisions. And the larger the transaction, the less the multiple seems to reflect the target’s real value creation. What counts is the story. Or the fear of being left behind.
What happens when markets turn? When interest rates rise, valuations fall, and the focus shifts back to fundamental analysis? Is the multiple then just a mirage fading in the rearview mirror? Or a useful compass – as long as we understand what it doesn’t stand for?
Perhaps it’s worth a new perspective: not as a pricing formula, but as a mirror of collective expectations. And not as truth – but as the starting point for real thinking about value.
