The question of how to value companies comes up pretty regularly in this forum. While it's tempting to seek comfort in detailed models and long lists of comparable acquisitions, the reality is that the nature of the search fund model creates are relatively tight multiple range (~###-###-#### 5x EBITDA) and where you fall within that range tends to only be a small driver of the outcome of the investment.
Small businesses tend to have much more volatile financials than large companies resulting in most of the either growing or shrinking significantly over the typical search fund hold period. Therefor, buying a business with growth potential is more important than buying cheap.
Additionally, paying up early in the process can be worthwhile. Since the business is generating ~1x EBITDA in cash per year (excluding taxes), paying 4.5x EBITDA in year 1 is comparable to paying 3.5x EBITDA in year 2.
The full breakdown of what drives the multiple range and more details about this concept can be found in the new blog post: