Valuation Is a Story With Numbers Attached

The most expensive sentence in the mid-market is "businesses like yours go for about six times".

Somebody says it at a conference, or a networking dinner, or over a drink after a board meeting. It sounds authoritative, it is roughly true of some average, and the founder carries it around for the next four years as though it were a fact about their company.

It is not a fact about their company. It is an average of outcomes across businesses with very different characteristics, and the spread around that average is usually wider than the average itself.

The multiple is not an input. It is an output, and the thing it is an output of is knowable and, to a useful extent, controllable.

01What does a multiple actually represent?

A summary of the buyer's confidence that the profit will continue and grow without you.

That is the whole content of it. When a buyer applies six times rather than four, they are not applying a sector convention. They are saying that they think this stream of earnings is durable, that they can see where the next three years come from, and that they are not relying on a single person or a single customer for it.

Everything a buyer does in diligence is a test of that confidence. When they ask how many customers are contracted, they are pricing durability. When they ask who your customers ring, they are pricing your departure. When they ask why margin moved in the second half of 2024, they are testing whether the earnings are what they appear to be.

Which means the multiple is not really about the profit at all. It is about the probability that the profit repeats.

02Why do identical numbers attract different offers?

Take two businesses. Both £2m of adjusted EBITDA, same sector, same size, both growing at fifteen per cent.

The first has twelve customers on three-year contracts, none over twelve per cent of revenue, a managing director who is not the owner, monthly accounts that reconcile, and three years of hitting its own budget.

The second has three customers, the largest at forty per cent, no contracts beyond purchase orders, a founder who holds every significant relationship, management accounts that need adjusting to agree with the filed accounts, and a plan that has been missed twice.

These businesses have the same profit. They are not the same asset, and in practice the offers can be several turns apart. It is not unusual for the spread between a well-prepared business and a poorly prepared one in the same sector to be the difference between four times and seven.

The founder of the second business will be told the market is difficult. The market is fine. The asset is harder to be confident about.

Nobody buys last year's profit. They buy their own estimate of the next three years, discounted by how sure they are, and the multiple is where that arithmetic lands.

03Which factors can you actually influence?

Roughly half, and the half you can influence is the half that takes two years.

You cannot change the sector you are in, the prevailing appetite for assets like yours, interest rates and the cost of acquisition debt, or how many credible buyers happen to be active when you go to market. These set the range.

You can change where in that range you land, and the levers are consistent.

Revenue durability. Converting repeat revenue into contracted revenue is the single most valuable thing most businesses can do, and it is a commercial negotiation with every customer rather than an administrative change.

Concentration. Below twenty-five per cent for your largest customer is the usual comfort threshold, and getting there means winning revenue elsewhere, which takes years.

Owner dependence. The largest discount most owner-managed businesses face, and it needs eighteen months minimum.

Management depth. A team that runs the business without you is worth more than the salaries it costs, and buyers notice its absence within two meetings.

Quality of information. Monthly accounts that reconcile, margin visible at product level, a track record of hitting the plan. This one is cheap and disproportionately effective, because it makes everything else believable.

Growth trajectory and its credibility. Not the forecast, but whether you did what you said you would do the last three times.

04What about competitive tension?

The factor founders most often underestimate, and the one their adviser most affects.

A single buyer negotiating alone sets the price. Two or more credible buyers competing sets a different price, and the difference frequently exceeds anything you could achieve operationally in the final year. This is most of what a good corporate finance adviser is being paid for: not the model, but the process design that produces genuine competition.

It is also why timing matters. Going to market when there is one plausible buyer, because you are ready and tired, tends to cost more than waiting nine months for a second to appear.

05What is an indicative valuation actually worth?

Very little, and founders build plans on them regularly.

An indicative offer is made before diligence, on the information you provided, by somebody who wants to be selected as your counterparty. It is a marketing document. It becomes a real number only after somebody has spent eight weeks inside your accounts, and the direction of travel between indicative and final is almost always downwards.

The gap closes when there is nothing to find. A business that has done the preparation typically completes close to its indicative range. A business that has not can lose a turn or more between offer and completion, and the loss usually arrives late, at the point of least leverage.

There is a related trap in the headline figure itself. Enterprise value is not what arrives in your account. Deduct debt, adjust for a normalised level of working capital, subtract fees, subtract anything deferred or contingent, then apply tax. Founders who have only ever discussed the headline number are frequently surprised by the difference, and it is better to be surprised now.

06What to take from this

Stop asking what the multiple is for businesses like yours. Ask what would make a buyer confident about the next three years of this specific business, and then go and make those things true.

That question has answers, most of them are on the list above, and all of them take between one and three years. Which is the real argument for starting early: not that the process is long, but that the levers are slow.

Six times is not a fact about your company. It is a description of what somebody else's company achieved, and there is a good deal of daylight between those two things.