hard · Private Equity & LBOs
A target reports $50M EBITDA. Diligence reveals it capitalizes $8M/year of costs that peers expense (inflating EBITDA), runs maintenance capex of $6M, and books a $4M non-cash gain from a pension remeasurement inside operating income. The deal is struck at 9.0x. A rival bidder, using the seller's unadjusted $50M, bids the same headline 9.0x.
After your normalization, what is the true multiple you would be paying on the rival's price?
- Normalized EBITDA is $38M, so the rival's $450M price is effectively 11.8x — the rival is overpaying on real earnings, and matching their headline 9.0x means paying ~11.8x normalized.
- Normalized EBITDA is $46M, so the rival's $450M price is effectively 9.8x — a modest premium within typical bid dispersion and not decision-relevant.
- Normalized EBITDA is $42M, so the rival's $450M price is effectively 10.7x — the gap is entirely the capex difference, which is a financing not an earnings issue.
- Normalized EBITDA is $54M, so the rival's $450M price is effectively 8.3x — the rival is actually getting a bargain once the capitalized costs are added back.
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