The starting point is EBITDA from the annual financial statements. One-off effects such as litigation costs, severance payments or gains on asset disposals are removed. Corrections are also made for contracts with the owner that are not on market terms. These include a managing director salary that is too low, a favourable rent for a property owned by the owner, or private expenses booked through the business.
For sellers of mid-sized companies, adjusted EBITDA is often the biggest value lever. Every euro accepted as a one-off increases the purchase price by the multiple applied. Conversely, buyers scrutinise every adjustment and strike out items that recur regularly. Adjustments work in both directions, so they can also go against the seller.
In practice, adjusted EBITDA is tested in a quality of earnings analysis as part of financial due diligence. Only adjustments that are documented and derived consistently over several years will hold up.
Example
Hypothetical example: A trades business reports EBITDA of €1.40 million. One-off litigation costs (+€0.12 million) and private vehicle costs (+€0.03 million) are added back, while a market-rate managing director salary (€90,000 more) and a market rent (€40,000 more) are deducted. Adjusted EBITDA is €1.42 million; at a multiple of 6x, enterprise value rises from €8.40 million to €8.52 million.
EBITDA vs. adjusted EBITDA
| Feature | EBITDA | Adjusted EBITDA |
|---|---|---|
| Source | Annual financial statements | Own derivation with supporting evidence |
| One-off effects | Included | Removed |
| Owner-related terms | As booked | Corrected to market level |
| Use | Reporting | Valuation, purchase price |
Sources
- Quality-of-Earnings-Analysen, Unternehmeredition
- Kaufpreisfindung beim Unternehmensverkauf, Rödl & Partner