Glossary
Deal economics
What is entry multiple?
Price paid as a multiple of EBITDA.
Pay 11x instead of 9x and you have pre-spent two turns of value creation. Multiple paid is the single decision that most reliably survives every operating plan.
A worked example
Buy a company with $50m of EBITDA at 10x and you pay $500m. At 12x the same company costs $600m, and that extra $100m has to come back through growth or a richer exit before you earn a cent on it.
Where it catches you in the game
- Higher entry prices cost cash and squeeze the return you can still earn.
It comes up most on the private equity desk.
Related terms
Learn it by using it
Definitions stick once they've cost you money. Take a seat, make three calls a year and watch what entry multiple does to your returns.