On deal below, I came to an impasse with the Broker/Seller, and was told "You are choosing to include 2017 and 2018 in your average. That is your opinion and methodology, but it is not market or correct to do so. Not even bank underwriters do this. You have the TTM earnings in the financials."

Broker also asked me to exclude 2019 from consideration which was basically a $0 year (I accepted their explanation)- but I wanted assurance through significant seller note that sales would continue is a strong way. The “TTM” also happen to include almost all of 2020 results in addition to abnormally up results in 2021 YTD, which looks a lot like trying to cram 2x years of earning into a single TTM.

Posting full details to help other current searchers and get some honest feedback. The following are the real numbers- am I too cheap?

* EBITDA numbers, I have taken off unreasonable addbacks and budgeted for an owner salary of ~$100k/yr

Asking Price = $3,000,000
Sales = approx. $1M in good years
EBITDA* = $306k (2017), $256k (2018), $21k (2019), $444k (2020), $391k###-###-#### YTD 1st 7mo), TTM claimed at $940k by Broker with their addbacks
Key Detail = Sales are very lumpy, only 15-20x POs per year, loss of one key PO is big impact on earning. Top and bottom line growth in TTM driven by 1-3x key POs. And Seller runs business, no employees to transfer (normal industry, this is not software).
My Offer = $1.25M EV, , 60% cash at close, 20% seller note with 10y term, and a separate 20% forgivable seller note due at end of year 2 tied to performance of first two years only. I offered to meet the Seller request of $2M EV, but only through additional earn out / forgiveable note. Cash at close kept to $750k, which I do not intend to up.
Seller Waiting for = $1.25M cash at close, with seller note to $2M EV. Broker tells me they've had other offers in the same cash at close range as me, which tells me that I'm not the only one valuing it this way.

I am self funded, prefer SBA option. My point of keeping cash at close lower is to keep seller engaged in what is going to be a potentially tricky hand-off at close with a no employee business.

This is not the only deal that I have been low or outbid on. Another deal went to another buyer for $1.65M at 4.1X EBITDA, 10% seller note (SBA), with no setoffs, despite 50% earnings tied to a single owner controlled contract. Another I am currently outbid on, the TTM has forced top offer to $2M at 4-6x historical EBTIDA, 10% seller note (SBA), with no setoffs, where TTM is improved in 2021, so currently at a 4x TTM.

So, am I too Cheap? What will banks underwrite? Any comments/advice welcome!