Key takeaways
- EV/EBITDA gives the value of the business before the effect of its debt structure. The owner receives the equity value, which is what remains after deducting debt and debt-like items.
- Every THB 1 million of EBITDA adjusted changes the price by the multiple; in the example, that is THB 7 million.
- In the example, a P/E of 12x gives THB 540 m, but the EV/EBITDA approach gives an equity value of THB 355 m. Real estate and hotel businesses should use other methods alongside it.
An owner multiplies net profit by a P/E read in the news and gets a satisfying figure. When the buyer replies, the figure is much lower. The buyer does not start from net profit; they start from adjusted EBITDA, apply a multiple, then deduct debt. The two sides are speaking different languages, which wastes time and damages goodwill. It is like the same car being priced differently depending on whether the maintenance history is complete. The price does not depend on the seller's description but on what can be proven.
The formula buyers use
Enterprise Value = Normalized EBITDA × EV/EBITDA Multiple
Equity Value = Enterprise Value − net debt − debt-like items ± working capital difference
Buyers favour EV/EBITDA because it makes it easier to compare companies with different debt structures and depreciation than P/E, which is affected by interest, tax and accounting policies. However, EBITDA is not cash. If the business needs heavy maintenance investment, buyers will also look at EBITDA − CAPEX.
What is normalisation?
Reported EBITDA reflects what has happened, but the buyer wants the figure that will continue under the new owner, so adjustments are made in both directions. Positive adjustments need evidence, and buyers usually accept only items that can be proven.
Hypothetical example A company has reported EBITDA of THB 72 m and net profit of THB 45 m. Figures are in THB million.
| Reported EBITDA | 72.0 |
| Add: owner's salary above the market rate | 6.0 |
| Add: legal fees for a concluded case that will not recur | 3.0 |
| Less: below-market rent from an affiliated company | (4.0) |
| Less: expenses excessively capitalised as assets | (5.0) |
| Less: one-off gain on sale of an asset | (2.0) |
| Normalized EBITDA | 70.0 |
| EV at a 7x multiple | 490.0 |
| Less: net debt (debt 150, cash 40) | (110.0) |
| Less: unpaid tax of 5 and customer advances treated as debt-like items of 12 | (17.0) |
| Less: working capital below the peg | (8.0) |
| Equity Value | 355.0 |
If the owner uses a P/E of 12x, the result is 45 × 12 = THB 540 m, which is THB 185 m, or 34.3%, higher than the EV/EBITDA approach. This does not mean one method is right and the other wrong, but it shows that P/E overlooks the debt and adjustments that a buyer will certainly deduct.
Price sensitivity
EV changes with both EBITDA and the multiple. Figures are in THB million.
| Normalized EBITDA | 6x | 7x | 8x |
|---|---|---|---|
| 66 | 396 | 462 | 528 |
| 70 | 420 | 490 | 560 |
| 74 | 444 | 518 | 592 |
There is no fixed multiple. It depends on the industry, size, growth, customer risk and market conditions. Use multiples from genuinely comparable deals and companies. Figures from large listed companies should not be applied directly to a private business, as a liquidity and size discount is usually needed.
When EV/EBITDA is not the main method
| Business | Complementary methods | Reason |
|---|---|---|
| Developer selling projects | RNAV or project-level DCF | EBITDA rises and falls with the transfer year; the value lies in the land bank and backlog |
| Rental property | NOI ÷ cap rate or DCF | Lease income is predictable |
| Hotel | EBITDA alongside DCF and value per room | Must account for the FF&E reserve and the terms of the management contract |
| Service companies | EV/EBITDA and DCF | Few assets; the value lies in cash flow |
On synergies
A strategic buyer may see benefits from combining the businesses, but will not automatically pay the seller for all of the synergies. The seller should know what each buyer gains from the deal and use this as negotiating information, and should not include this figure in the EBITDA presented.
The agreed price can still change until closing
Even after the multiple is agreed, the price mechanism still affects the money received. Under completion accounts, the price is adjusted to the accounts at the closing date, so the definitions of debt and working capital must be agreed in detail. Under a locked box, the price is fixed from accounts at a specified past date, and the seller must warrant that no cash has leaked out of the company since that date. The buyer may also propose an earn-out, where part of the price is paid based on future performance. This can bridge a price gap, but the seller must check how performance is measured, who controls operations after the sale, and that this portion should be treated as uncertain value, not money that is already secured.
Next steps
- Prepare a three-year EBITDA bridge with evidence for every item
- Compile a list of all debt and debt-like items
- Derive normal working capital from the 12–24 month monthly average
- Collect data on genuinely comparable companies and deals
- Use more than one valuation method and explain the differences
- Separate the value of non-operating assets from the core business
- Have an independent valuer review the figures as real negotiations approach