Why two businesses with the same EBITDA can have different values

Start with maintainable earnings

Suppose I am reviewing two businesses, each reporting £300,000 EBITDA. That does not automatically mean they are worth the same amount. The first question is whether £300,000 is sustainable after reviewing normalisations, exceptional costs and the earnings history.

A buyer will also consider the relevance of each historical year. A strong year followed by declining margins may deserve a different weighting from consistently stable earnings.

Then look beyond the headline number

Business A has recurring customers, an experienced management team and no single customer accounting for a material proportion of sales. Business B relies heavily on its founder, derives much of its turnover from one customer and has less predictable work.

Even at the same EBITDA, those risk profiles can justify different multiples. A market-derived size benchmark is useful, but it is not a substitute for assessing the business itself.

Enterprise value is not necessarily the seller’s proceeds

Once I have an enterprise value, I reconcile it to debt, surplus cash, debt-like items and the normal working-capital position. The transaction’s completion accounts and agreed definitions matter.

Price and payment terms are separate questions. Deferred consideration, vendor finance and earn-outs can change both risk and the economic value of an offer.

How I would approach this in practice

I would investigate contract renewal, management dependency, customer concentration and maintenance capex before deciding whether either multiple is reasonable. I would also test the cost of replacing the owner's operational role.

I would use the evidence to identify the key commercial assumptions, test alternative outcomes and decide what could realistically be done next. The point is not to produce a precise-looking number in isolation, but to reach a conclusion that can be explained and acted upon.

A useful next step

My approach is to start with a reasonable range, challenge the assumptions that move it and make clear where information is missing. A valuation should support a decision, not pretend to predict an exact sale price.