Average Multiple Expansion for Search Acquired Businesses?

June 12, 2023

by a searcher from Washington and Lee University in Cambridge, MA, USA

All,

I'm looking for data in regards to multiple expansion of exited search acquired businesses. Typically I model no multiple expansion on the base case and 1x upward on the upside case. I've seen others mark this up substantially (2-3x multiple expansion for non-technology businesses) and want to compare these models with actual data.

I reviewed the most recent Stanford Primer but couldn't find data on this topic. Any insight -- with specific successful exit multiple expansions would be helpful. So far I have an n of 1 that is around 1.25x expansion.

Thank you in advance!

Reply by a searcher
from Harvard University in New York, NY, USA

Just another n of 1 but my approach would be based on two factors: 1) how much of a discount to market price is the current deal - this would be typical if seller is retiring and selling at below market or a similar situation, 2) if the plan for the company is to substantially increase EBITDA to another threshold of buyer; A sub 500K SDE usually sells for a lower multiple than a >1M SDE and then another step up for multi-million dollar SDE and so on, 3) growth trajectory leading to exit period - multiples will be higher for a business with consistent top line and EBITDA / SDE growth. I don't have specific numbers I use but factor these into my thinking about what an exit multiple could look like in different scenarios.

Reply by a searcher
from Dartmouth College in Albany, NY, USA

I would start my search on Pitchbook, but I would be surprised if you could find enough documented multiple expansion to create a decent compset. I could be wrong, never tried to do it myself.

Anyone claiming they can realize multiple expansion has a heavy burden of proof to their IC/potential investors. Even my upside cases don't include any.

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