Exit Multiple
Investment Banking glossary · Investment Banking Valuation
Definition
EV/EBITDA multiple assumed at exit in an LBO or used to compute the DCF terminal value: TV = EBITDA_n × Exit Multiple. The conservative convention in LBO modeling is to assume exit multiple equals entry multiple (any expansion is upside). In DCF, the Exit Multiple Method (EMM) is typically preferred to the Perpetuity Growth Method because it is market-based and ties terminal value to observed comp multiples.
Exit Multiple in plain English
An Exit Multiple is a shortcut for guessing what a company will be worth years from now: you take its future annual profit (EBITDA) and multiply by a number that reflects what similar companies sell for — say 8 times EBITDA. Investors use it two ways: in a buyout (LBO) to estimate the resale price when they cash out, and in a DCF valuation to pin down the "terminal value," the lump of worth beyond the years you forecast in detail. A careful analyst assumes you sell at the SAME multiple you bought at, treating any improvement as a bonus rather than banking on it — like assuming you'll resell your car at a normal used-car price instead of hoping it becomes a collector's item. Because it's anchored to what real companies actually trade for, bankers often trust it more than the alternative method that assumes profits grow forever at a fixed rate.
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