Understanding the numbers · Topic guide
Valuation multiples
A price expressed as a multiple of a clearly defined measure of annual earnings.
A multiple is a ratio, not an independent explanation of value. If a business is priced at £3.5m against £1m annual earnings, its price is 3.5 times those earnings. The same price produces a higher multiple when sustainable earnings are lower. Always specify whether the denominator is EBITDA, pretax profit or another measure, and identify the relevant financial period.
Sey often discusses modest multiples for smaller UK industrial and business-service acquisitions. Those are preferences within his financing model, not a current market valuation survey. A live discussion illustrates the danger of choosing only the strongest year: a price described as three times one year’s earnings becomes roughly 4.4 times the two-year average. Watch source Watch source
Use a multiple to test assumptions rather than to shortcut diligence. Review the stability of customer demand, replacement management costs, capital needs and seller payment terms. Then ask how the acquisition is financed and whether the company can survive the repayment schedule. The reported £1.8m purchase against roughly £950k adjusted EBITDA is explicitly described as exceptional. Its calculated multiple is about 1.89 times, not a general buying opportunity promised to every reader. Low price can create room for error, but cannot prevent losses when the underlying earnings disappear. Watch source
Follow the connections
Adjusted EBITDA · Enterprise value · Leverage.
Continue in the course: Valuing a small business.
See it in an example
- Reported completed
The reported £1.8m acquisition
Reconcile the reported payment schedule and see how rounded earnings change the purchase multiple.
- Hypothetical
When an addback doubles claimed earnings
Test the operating assumption behind a marketing adjustment before using it to value a business.
- Hypothetical
A £3.5m valuation from two years of earnings
Average the stated pretax profits and compare how the chosen year changes the apparent multiple.
Numbers in context
- Suggested entry valuation · 1–3.5x annual profit; 10x called badRule of thumb
Sey argues for a modest entry price relative to annual earnings.
This is his valuation preference, not a market-wide fair-price range.
- Target cash and seller funding · £2.5m from own balance sheet; £0.5m apparently seller financePersonal experience
The account combines balance-sheet cash with an apparent seller-funded component.
Missing terms prevent reconstruction of the complete purchase price and funding stack.
- Bank lending multiples · Historical 2x–3x; difficult current request <2xPersonal experience
Sey contrasts earlier bank leverage expectations with a more difficult refinancing request.
The earnings denominator switches between EBIT and EBITDA, limiting comparability.
- Suggested entry multiple · 2x–3x; maximum 4x average profits from last 2 yearsRule of thumb
The speaker anchors an offer to a short history of average earnings.
His preferred ceiling changes in later discussions of distressed businesses.
- Illustrative transaction · £1m pretax earnings; 4x price=£4m; £3m upfront=75%; £1m laterHypothetical
A simple offer splits the headline price between completion cash and later consideration.
Fixed deferral and an earn-out have different payment conditions and are not interchangeable.
Sources & further viewing 4 videos
The explanations on this site are independent synthesis. Follow each original for full context. A reported experience is not independent proof of a transaction.
- Rule of thumb Two-year pretax earnings average
- Personal experience Normalize recent profit gains
- Personal experience Exceptional £1.8m deal